“You need a dashboard to see how well we’re navigating the gauntlet this week,” Jim Cramer said Tuesday on CNBC’s “Mad Money.” And by gauntlet, Cramer was referring to the dizzying fray of reports investors will be awaiting from the Federal Reserve, the European Central Bank and the U.S. Labor Department — with that big Friday jobs number.
But the “Mad Money” host decided to share some of his secrets and explain how he tracks eight key sectors to determine just how the market might play out a day or two in advance.
First and foremost, Cramer always watches gold. He insists that every investor should not only own gold but also track the precious metal along with him — by using the SPDR Gold Shares Trust. Sometimes it’s hard to tell what gold is really measuring, especially when the commodity outperforms every other asset class in both good times and bad. But gold isn’t fickle, he said. At times, gold simply reacts to a given set of stimuli, and right now he’s waiting to see what signals it sends about Europe.
In the past, Cramer said, gold has served as a fairly accurate indicator of when Europe was about to make big moves to solve their problems, either by printing out more money or borrowing funds to buy sovereign debt. Gold prices almost always edge higher ahead of European moves that most investors would consider “positive,” such as bringing down Italian and Spanish bond yields, and they usually fall right before Germany vetoes an operation.
“That makes sense because right now, gold is serving as a barometer for inflation,” he said.
If the precious metal declines on Wednesday, Cramer said that’s a signal that “the era of unity and good feelings in Europe is off,” whereas a rally in gold should mean very good things for the market.
As Europe continues to take center stage, Cramer said he likes to track theeuro itself, as measured by the CurrencyShares Euro Trust. He said he wants to see the euro hold above the $119.70 level since that marks the currency’s most recent low — just a little less than $3 away from it current levels. And since the $130 mark was where the euro last fell from, “any sign that we might get back there would be hugely bullish for the stock market and could take us to all-time highs,” he said.
Cramer also likes to keep an eye on copper. He uses the copper ETF known as the JJC as the best judge of actual industrial strength, since copper acts as a universal input for so many products and infrastructures. It’s also too big a market to be manipulated, he said. The JJC was last seen bouncing between $42 and $45 — and while the commodity refuses to break down, the $45 cap has proved to be “downright hellish” for the bulls. “Right now, the JJC is a push indicator and could go either way.”
Next on the list is transportation. Cramer likes to track transports because he believes they’re a measure of shipping everything, from people to heavy cargo. He likes to watch the Dow Jones Transportation Average Index Fund to get a good sense of where the economy is. The IYT peaked in July 2011, took a huge swoon right after and ran slightly higher back in February. “That’s a lower high and it bothers me, given the strength we’ve seen in rails,” he said. “I need to see the transports regain that [July 2011 peak] before I can trust any turn in the economy.”
As far as Cramer’s concerned, retail is just as important a sector as transportation. He called retail one of the most impressive sectors in the market and said that its refusal to roll over has kept him from getting too bearish. “Nothing measures consumer spending and, conceivably, consumer confidence, better than the Market Vectors Retail ETF,” he said.
Because we’re currently faced with a severe lack of bull markets right, Cramer always keeps the SPDR S&P Homebuilders ETF front and center on his dashboard. He believes the homebuilders ETF is the most sensitive of any index to action from the Fed. If we see the XHB tick down ahead of the Fed meeting’s results tomorrow, we could be setting up for a disappointment and a lack of action from Fed Chairman Ben Bernanke, he said. That, of course, would be terrible for the market.
Another sector Cramer always has his eye on is the banks, which he tracks via the Financial Select Sector SPDR Fund. Last week, the XLF started breaking to the upside and Cramer thinks that could be an indicator of investor optimism where both Europe and the U.S. fiscal cliff are concerned. “I know that’s a tall order from one index,” he said. “But the banking group is incredibly sensitive to both Washington and Europe.”
And last but not least on Cramer’s radar is the Market Vectors Oil Services ETF. He said that lately, the index — along with the United States Oil Fund — hasn’t been particularly helpful because both tend to factor in too much geopolitical risk to give us a useful read on Europe, Washington or even actual consumer demand for oil and gasoline. But a real run in oil "could derail anything," he said, so they’re still worth noting.
These indices may not be talked about all the time like the all-mighty S&P 500 or the Dow Jones, and they may not even be right all the time. But any investor hoping to stay on top of the markets and anticipate major moves should pay attention to these markers and stay focused on the key levels — a practice Cramer hopes will “become second-nature for you.”
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