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4 Market Tells That Are Better Than The Dow

Jeff Macke
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The Dow Jones Industrial Average which briefly topped 13,000 yesterday for the first time since 2008, made for a great headline but the event was slightly less exciting to those who make their living investing.

"Nobody really looks at the Dow anymore except for news outlets and retail investors," says Dan Fitzpatrick, founder of StockMarketMentor.com. It's an observation based less on snobbery than the simple fact that the Dow has been replaced by other indexes and sectors generally regarded as more useful than a 30 company index based on the dollar value of each share, rather than market capitalization of the underlying company.

The obvious question for Fitzpatrick then is what he is looking at to help him divine market direction, if not the Dow. Fitzpatrick has four better market "tells" he's got his eye on:

The Dow Transports

Unlike the DJIA, which attempts to cram all relevant sectors into 30 stocks, the transportation index is, appropriately enough, all about transportation companies. People, boxes, coal or Christmas cards, if a company moves something from point A to B it's sub-sector is represented in the Transports.

Compared to the major averages the the Transports (^DJT) are lagging; a possible sign that the economy may not be all that it may seem. It's also an obvious reflection of the fact that the airline business may be the toughest industry to make money in the history of man. That's why Fitzpatrick uses more than one tell.

Semi-Conductors

Left for dead as decade ago, the semi's (^SOX) have been perking up. It's not the first sign of life since the bubble burst; there have been other head fakes before. Still, positive action in semi-conductors can't be ignored. It's not just a matter of whether or not you're long Intel (INTC), which I am. Semi's reflect economic expansion, something the bulls obviously want to see.

Financial Stocks (ETF: XLF)

Speaking of left for dead, since the bubble burst in housing and took most of the banking sector down with it, the financials have bounced in a tight range adding up to nothing. "I want to see the financials at least firming up" prior to going bullish, says Fitzpatrick.

The banks are firm but it's fair to say an explosive move to the upside remains hypothetical.

Crude Oil

Brent crude oil is to the more commonly quoted West Texas Intermediate as the S&P 500 is to the Dow. Brent is the index that actually matters while the WTI grabs the headlines. With Brent breaking over $120 a barrel and making 8-month highs today, Brent staying in the background is probably for the best.

"If we get $5 gas the retail sector is going to implode," says Fitzpatrick, merely chipping at the top of the potential gas nightmare. $5 a gallon is a wild long shot but prices are at all time highs for this time of year, up 12% year over year. Tack 12% on last year's high of about $4 a gallon and you have prices near $4.50. Obviously a negative.

Fitzpatrick is in the camp of cautious bulls. He's long now and looking for the dip that's been overdue for weeks before adding exposure. It's not as neat a headline as "Dow 13,000!" but making money in stocks seldom is so pithy.

We want to know what you think! Share your favorite market "Tell" with us in the comment section below or Tweet me @Jeffmacke.

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