The rapid slide in commodities prices is fueling the recent runup in stocks as Wall Street dumps oil, metals and grains and snaps up beaten-down banks, retailers, airlines and small caps.
But if you're thinking of following the smart money, keep this in mind: Market pros think the switch might be short-lived.
While investment consultants, money managers and hedge funds are looking to capitalize on the sudden strength in equities, many are wondering how long the trade will last once global demand for commodities resumes and pushes up prices again.
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"My short-term feeling is it's hot money, it's looking to make money on a trade. It's not commitment money that's looking to stay in," says Michael Kresh, president of M.D. Kresh Financial Services in Islandia, N.Y. "It's not necessarily a sign that the bear market is over. I could see this reverse relatively quickly."
Even while hedge funds, which have been faulted for much of the surge in energy prices, take their money out of oil, there's hardly been a mad dash for the door.
"Clearly there's a major trade going on which I think is more technical than fundamental," says Jordan Kimmel, a hedge fund manager with Magnet Investing in Randolph, N.J. "I think the commodities play is going to come back sooner than most people recognize."
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Kimmel sees oil rebounding in the next few months, though not necessarily taking out the record high of $147.27 hit on July 11.
"There's huge demand on the production side that is not going to go away," he says. "I just think that the fundamentals are too strong."
Finding a New Home
The money flowing out of commodities has found a home in a variety of places—in some of the usual suspects like financials and airlines, which depend on lower transportation costs for growth, as well as other locales that get less attention.
Consumer discretionary stocks have attracted attention, as have health care and small companies that are generally relied upon to deliver the market from bear territory.
Peter Miralles, president of Atlanta Wealth Consultants, says he likes some of the companies on the Russell 2000 small-cap index but says he too is hesitant to call a market bottom and investing more heavily.
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"We've been adding money into some of the small caps, some good companies out there," Miralles says. "We want to be there first. However, we're still being cautious. We're not investing all the cash right now. We don't think we're out of the woods yet."
Finding spots to go in such tenuous times poses a pretty big challenge for market players.
"Right now the money's rotating pretty heavily out of the commodities and it's going into areas that have not had much attention as of late," says Richard Sparks, senior analyst at Schaeffer's Investment Research in Cincinnati. "It's certainly much more a stock-picker's market. You don't see the broad money going pretty much everywhere."
Sparks favors some of banks that took a beating during the subprime meltdown, among them Wells Fargo WELLS FARGO & CO NEWWFC 30.38 -1.23 -3.89% NYSE
"I think those trades make sense for those people who want to dip their toe in and take a little speculative turn here," he says. "I think for the next month or two we're on an upswing."
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Miralles says stocks could get another bump when Europeans, who tend to vacation heavily in August, return and try to capitalize on the recent upswing.
"Are they going to feel like they missed a lot of this and do some catch-up and push the market higher?" he said.
Stocks also are likely to get some help from a stronger dollar. A weak greenback boosts commodities, most of which trade in dollars and become more attractive to foreign investors during times of weakness for the American currency.
"It feels like commodities have settled down, and I think stocks as a result could see some more upside," Rich Berg, of Performance Trust Capital Partners, said on CNBC.
The full video of Berg's analysis is in video at left, along with commentary from CNBC's Rick Santelli and John Ryding of RDQ Economics.
For Kimmel, the pullback in oil prices has given him the opportunity to take advantage of some alternative-energy plays that capitalize on Americans' newfound trend towards conservation.
He likes Fuel Systems Solutions FUEL SYSTEMS SOL INCFSYS 56.91 4.31 +8.19% NASDAQ
Quote | Chart | News | Profile [FSYS 56.91 4.31 (+8.19%) ], which supplies components used to power alternative fuel vehicles. The stock has gained a stunning 273 percent this year and Kimmel believes it still has room to run.
Also, he is recommending Canadian Solar CANADIAN SOLAR INCCSIQ 30.91 4.01 +14.91% NASDAQ
Quote | Chart | News | Profile [CSIQ 30.91 4.01 (+14.91%) ], which designs and makes solar equipment and has gained only modestly this year but is well off its 52-week high, suggesting potential to the upside.
Kresh said he is tentatively moving his clients' money out of cash and into equities. He favors small-caps, which have more growth possibilities, he says, than a mega-cap like CNBC-parent General Electric GENERAL ELECTRIC COGE 29.74 -0.21 -0.7% NYSE
Quote | Chart | News | Profile [GE 29.74 -0.21 (-0.7%) ] or Microsoft MICROSOFT CORPMSFT 28.12 0.22 +0.79% NASDAQ
Quote | Chart | News | Profile [MSFT 28.12 0.22 (+0.79%) ]. He is avoiding financials, primarily because he thinks long-term investors could get crushed if the market turns lower after the summer rally.
"Long-term investors don't move money at this rapid a pace. That suggest to me that this is a trade that's going through and not people establishing long-term positions," Kresh says. "Investors need to be cautious, because in this kind of market you can get whipsawed in a hurry."
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