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Wow, this market is not easy to push down. During the now six month rally, negative data coming from purchasing managers indexes like Chicago, disappointing Chinese GDP data, and generally lackluster economic data from Europe, have still moved the market.

However, while even during the strongest months of the recent rally negative data has at least temporarily caused the market to sell-off, these market drops have been almost always been short and swift. Given that commodities like oil, as well as leading industrial and financial stocks, have finally pulled back for several weeks now, I think it is worth reexamining the fundamental of the market rally's leaders.

The market's leaders during the last six months has generally been big-cap tech, with Apple (AAPL) and the financials, with stocks like Citigroup (C) and JP Morgan (JPM) leading this sector.

However well the financials and big cap tech have led the rally, oil and other commodities have been important asset classes in the market rally as well. Oil bottomed in the low seventies prior to the market's initial rally in October, and recently topped out at around 110 before this recent sell-off. Obviously, many asset classes have stronger correlations at different times. Still, oil has a fairly strongly correlation with rallies in the U.S. market during the past six months. Let's look at the chart.

(www.thestreet.com)

Given the fairly strong recent correlation between oil and the broader index, I think it is interesting to look at the recent pullback in West Texas Intermediate Oil. The three major reasons oil has rallied has been because of geopolitical uncertainty in the Middle East centered around Iran, an improving U.S. economy, and low inventory numbers. Over the past several weeks the inventory numbers have become significantly bearish, Iran's threat to close the Strait of Hormuz have proven to be a bluff, and the jobs data in the U.S. has disappointed.

Despite a "perfect storm" to create a sell-off in oil, the commodity has held its $102 support level fairly firmly after topping out at around $110 a barrel recently. While obviously this could be since their is some technical support at $102 level, I think the reason is more about improving fundamentals on the demand side.

Despite the modestly disappointing Challenger jobs report, the recent data from China has been strong. In addition to the positive recent CPI data coming out of China, the Chinese real estate market also showed signs of life for the first time in over a year as well. China's largest developer reported their second consecutive increase in year-over-year sales, and real estate sales in China have been increasing since the Lunar year as well.

The fact that the Chinese economy showed a trade surplus for March was surprising as well. For the first time a wide number of Chinese families reported seeing real estate prices at appealing levels. While the U.S. is nearly one fifth of total demand of oil today, China is still the biggest importer of crude in the world. China is also the fastest growing market.

Similarly, the price action in Apple remains very positive as well. Apple today is just a couple dollars from the stock's all-time high, and the company's dividend announcement and positive comments on recent iPad sales have continued to fuel the stock's rally.

(www.thestreet.com)

While the volatility levels in Apple's call options remain fairly elevated, investors and traders in the world's biggest company can buy protection going out several months in the options market very cheaply. Today, with Apple shares at around the $650 price level, a trader can purchase protection going out nearly five months for just 4% of the stock's current price. Given that Apple has been moving up over 1% a day, the premium in Apple put options are very low.

To conclude, certainly the market rally has largely been predicated on improving data in the U.S. and stronger actions being taken by the ECB in the Euro-Zone. Still, the disappointing recent jobs report was not a huge surprise in a time of frequent seasonal weakness in the economy.

Also, while the rate at which the U.S. economy is recovering may be slowing, economic data in Asia continues to improve. With Chinese equities lagging most of the broader index and tracking exchange traded funds like the SPY by a fairly wide margin, an improving real estate and construction sector in China could provide a good catalyst for improving second half growth numbers in Asia and abroad.

Source: Why The Strength Of The Market's Leaders Suggest This Pullback Should Be Bought