The stock market rarely reacts well when volatility erupts elsewhere.
Last week, we saw historic swings in the metals market. That volatility spilled into currencies, and before long it showed up in many stocks as well.
When commodities and forex start whipping around like that, investors naturally start asking uncomfortable questions.
Is this volatility the beginning of the end for the bull market?
Are the divergences we’ve been highlighting a warning sign of a major regime change?
One area, in particular, has a habit of cutting through this kind of noise. When markets are confused, it tends to be one of the first places you see it.
That is usually where the real answers are hiding. The rest is just noise.
Whenever there is doubt, the solution is simple: Zoom out.
The end of the month gives us that opportunity. Fresh monthly data. Longer-term charts. A chance to separate signal from chaos.
So, before jumping to conclusions based on a volatile week in metals or currencies, let’s step back and look at what the broader market is actually doing.
New All-Time Highs Broadly
Zooming out at the end of each month helps strip away the daily noise. And there’s always noise. We’re human. Even when you focus on markets for a living, it’s impossible to avoid it completely.
This month, the market was hit from every angle. Metals. Energy. Crypto. Software stocks. Interest rates. Plenty of volatility and plenty of reasons to get distracted.
And yet the result was simple.
The Invesco Equal-Weight S&P 500 ETF (RSP) gained 3.4% to start the year:
For an ETF that averages less than a 1% monthly return since its inception, that’s a strong move.
This is not a negative development for the market. Quite the opposite.
But it does come with an important caveat, one that matters for both bulls and bears.
The index has finally pushed above the key resistance from the fourth quarter of 2024, a level that capped prices for months before giving way late last year.
If this market is going higher, that former resistance now needs to act as support.
For the bulls, holding above this level keeps the trend intact. For the bears, a failure back below it would be the signal they’re waiting for.
From where we stand right now, though, the verdict is clear. This market is still innocent until proven guilty.
Industrials Do It Again
We say this often for a reason. Industrials have the highest historical correlation with the S&P 500 of any sector.
So when industrials are making new all-time highs, as they just did to close out January, it raises a simple question.
How bad can the environment really be for stocks?
When you zoom out, the picture is straightforward. Industrials look strong. And the most bullish thing a stock or a sector can do is go up.
That’s exactly what’s happening here. Industrial stocks are trending higher, and, historically, that’s been a positive sign for equities as an asset class.
This also is not just a U.S. story. Outside the United States, industrials matter even more.
The S&P 500 has roughly a 7% weighting in industrials. The MSCI All-Country World Index ex-U.S. has more than double that exposure, at more than 14%.
That makes industrials important for American investors. But it makes them critical for anyone allocating capital to stocks as an asset class.
The Do-or-Die Moment
When you zoom out, industrials look great. The trend is intact and the message is clear.
But when you zoom back in, it’s no longer about trend. It’s about timing.
This consolidation in the Industrial Select Sector SPDR ETF (XLI) through the back half of January is the setup:
Tight ranges like this don’t last. The market is compressing energy, and it’s going to release it in one direction.
How this resolves will be an early signal for the next move in industrials.
And, because of their relationship to the broader market, it will also be a major tell for stocks as an asset class.
This decision is coming soon. That’s why all eyes should be here.
The end of the month is when long-term charts matter most. It’s the best time to zoom out, remove the noise, and understand the bigger picture.
But once that work is done, you zoom back in. And when you do, industrials are screaming for attention.
While everyone else is obsessing over gold, interest rates, and software stocks, the real driver of risk is sitting right in front of them.
Everybody’s wrong.
Industrials are the trigger.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs