I’ve got three charts for you today – and they matter.
Two of them help explain where the market is right now. The third may give us a glimpse of where it’s headed next.
That’s how market analysis works. We never have perfect information. We make decisions with what’s available, knowing the picture is always incomplete. And that’s OK.
The process starts with weighing the evidence in front of us. Not one indicator. Not one opinion. The weight of the evidence.
And every so often, as we work through that process, something stands out. A setup. A signal. A kind of treasure map that can point toward opportunities in the months and quarters ahead.
That’s exactly what we’re digging into today.
The Most Important Stocks in the World
The New York Stock Exchange Composite Index represents the full universe of stocks trading on the world’s most important exchange.
And on Friday, it closed at the highest level in its entire history:
This isn’t just a U.S. story. The New York Stock Exchange is home to many of the largest and most influential companies from around the world.
That means meaningful exposure to cyclicals and true global bellwethers, especially the biggest banks and industrial leaders across multiple countries.
There’s no place to hide in this index. When conditions are strong, it shows up here.
And when they aren’t, it shows up just as clearly.
That’s why this breakout matters.
98% of All Investable Assets
The Russell 3000 Index represents approximately 98% of the total investable U.S. equity market by market capitalization.
And it just closed the week at the highest level in its history:
This index combines the entire Russell 1000 (large caps) and Russell 2000 (small caps) into one complete picture.
In other words, it doesn’t cherry-pick. It shows us nearly every stock that matters in the U.S. market.
And right now, that entire universe is at record highs.
When you pair the Russell 3000, our broad view of America, with the NYSE Composite, our window into the world’s most important stocks, you get a powerful read on equities as an asset class.
Both are making new all-time highs.
That tells us everything we need to know about the trend: It isn’t down. It’s up and to the right.
So What’s Next?
As I was going through my charts this weekend – same routine, same process – one index stopped me in my tracks.
It had the “wow” factor.
I’m talking about small-cap Financials.
Specifically, the S&P 600 Small-Cap Financials Index Fund (PSCF):
This is one of the largest, cleanest, longest bases anywhere in global markets.
We’re talking about hundreds of regional banks, grinding sideways for years, doing all the hard work that precedes a major move.
And here’s the thing: If this index breaks out to new all-time highs and starts a fresh leg higher… look out.
I honestly can’t think of another chart with more bullish implications for the broader market.
We don’t get bull markets without Financials. Period.
Large-cap Financials are already leading. European banks are ripping. Big global banks are making new highs. That’s the heavy artillery.
Now imagine the little guys joining the party.
These are the most sensitive names in the system. If there were real credit stress – if something were truly broken – these would be some of the first stocks to roll over.
They haven’t.
So flip the narrative on its head.
What if this decade-long base resolves higher? What if the most vulnerable part of the market starts acting like the healthiest?
They keep telling us the next banking crisis is imminent, that it’s going to make the GFC look like a warm-up act.
Maybe they’re focused on the wrong charts. Or worse, they’re ignoring the charts entirely.
Because if small-cap Financials break out from here, the debate is over.
This isn’t the end of the bull market. It’s the part most people aren’t positioned for.
You can argue with narratives. You can argue with opinions.
But you can’t argue with price.
This Week in Everybody’s Wrong
On Monday, we talked about how the market itself is telling us it’s still a “risk-on” environment.
Our offense is on the field right now for one simple reason.
On Tuesday, we reviewed an old-school rule about the stock market that still applies today.
We don’t get bull markets without Financials.
On Wednesday, we looked at the Materials sector, which hasn’t done much for three years.
A breakout for Materials probably isn’t going to move the entire market.
This is about broadening participation, which is a sign of good health.
On Thursday, we took some time on Christmas to remember a few of our favorite issues since we started this note back in the spring.
It’s a long list, and there’s a lot of really good stuff.
Enjoy the best of Everybody’s Wrong… so far.
On Friday, we gave Papa Dow his due.
The Dow Jones Industrial Average just closed at another new all-time highs.
Cap-weighted, price-weighted, equal-weighted, pick your methodology: It’s a bull market…
On Saturday, Jason Perz shared another typically thoughtful piece on one of the most important character traits a trader can have.
In fact, it’s something everybody everywhere can use.
This is a great read on why persistence is perhaps the ultimate good.
Have a great Sunday.
We’ll see you Monday morning…
Stay sharp,
JC Parets, CMT
Founder, TrendLabs