The commodities trade was back in a big way Tuesday, bringing glee to many momentum traders, including one source who's been buying oil since it traded below $50 per barrel briefly last week.

Light sweet crude oil for March delivery jumped up 4.7% Tuesday to close at $55.04 per barrel on news President Bush will call for a doubling of the Strategic Petroleum Reserve in the State of the Union later tonight.

But it wasn't just oil that surged -- traders spent Tuesday piling back into everything that comes out of the ground, including natural gas, gold, silver, copper, and corn, among others.

Exactly where the chain reaction begins is not clear, but along with the commodities surge, the dollar sold off and emerging-market indices rallied. Other higher-risk trades that depend on investors believing in a strong economy and plentiful liquidity also rebounded.

Junk bond risk premiums tightened to their lowest average level in 10 years, and U.S. cyclically sensitive stocks rallied. The sum left all three major indices in the green for the day.

The Dow Jones Industrial Average gained 0.5% to close at 12,533.80, while the S&P 500 added 0.4% and the Nasdaq Composite gained just a fraction.

As oil rallied, shares of Exxon Mobil ( XOM), Valero Energy ( VLO), and Schlumberger ( SLB) rebounded, gaining anywhere between 2% and 4.2%.

With a surge in metals prices, Freeport MacMoRan ( FCX) and Phelps Dodge ( PD) gained 4.2% and 1.7%, respectively.

Cyclical names such as Caterpillar ( CAT), Temple Inland ( TIN) and United Technologies ( UTX) rallied sharply as well, helping the Morgan Stanley Cyclical Index climb 1%.

"The big wind here is the dollar," says James Paulsen, chief investment strategist at Wells Capital Management. The dollar was strengthening through the early part of 2007, while the energy and commodity trade fell out of favor, he notes. At that time, investors poured money into large-cap technology stocks, which now suffer from cautious earnings guidance.

Speaking of which, shares of Yahoo! ( YHOO) were initially sliding in after-hours trading on soft earnings guidance. But the stock has since rebounded, recently up more than 5% in after-hours trading amid optimism about the long-awaited debut of Yahoo!'s Panama ad system. Yahoo! appears to be following the regular-session pattern of Texas Instruments ( TXN), which rose 3.5% despite offering weak first-quarter guidance.

Elsewhere, the homebuilders benefited from a Goldman Sachs upgrade to neutral from sell. The Philadelphia Housing Sector Index jumped 2.4%. Shares of homebuilders Centex ( CTX), D.R. Horton ( DHI) and Hovnanian ( HOV) added at least 2% apiece.

Tuesday, the dollar dropped to a two-week low against the euro and a 14-year low against the British pound, and breathing life back into basic materials and commodities, says Paulsen.

Rising commodities prices breed strength in commodity-producing emerging markets. Mexico and Brazil's benchmark indices jumped 1.5% Tuesday.

Fundamentally, supply and demand factors are not out of whack, says Adam Sieminski, chief energy economist at Deutsche Bank. Take oil. Traders are skeptical that OPEC is really cutting supply, while non-OPEC nations are not making as much oil as they expected. And concerns about the U.S. and global economies have been waylaid, so demand is expected to remain strong. "That adds up to a strong fundamental picture for oil," he says.

In terms of the technical factors, oil hit a short-term bottom at $50 per barrel, says Leo Mariani, senior energy analyst at RBC Capital Markets, adding that speculators and cold weather in the U.S. helped form that resistance level.

Sieminski believes oil will average $62 per barrel this year. Joe Palmisano, technical analyst at IDEAglobal, expects this rebound in oil to reach $58 per barrel in the next couple of weeks, only to sell off again and find resistance at $48 or $49 per barrel.

The U.S. government got in on the bargain prices as well Tuesday with an announcement that helped seal oil's bullish move. Ahead of President Bush's State of the Union Address, U.S. Energy Secretary Samuel Bodman said Tuesday the U.S. will start buying 100,000 barrels of oil per day to replenish the Strategic Petroleum Reserve.

The U.S. depleted the reserve in the wake of hurricanes Katrina and Rita in 2005, but had stopped building it back up last summer when the price per barrel reached as high as $78. The administration also said it plans to double the size of the reserve to 1.5 billion barrels over the next two decades.

Bush is expected to address the issue of U.S. energy consumption in his speech Tuesday. Many believe he'll make another push for alternative energy sources, which also could boost the price of corn to new dramatic highs --much to the chagrin of people who eat lots of tortillas.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click here to send her an email.

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