We want to look at the broad market and treat every single stock market index as a tiny piece of a much bigger puzzle. The Dow Jones Transportation Average has been a great leading indicator for stocks as an asset class over the past few years and we continue to want to treat it that way. Remember, the Transports peaked at the end of 2014, 6 months before the S&P500 and this year the Dow Transports bottomed out in January, well before the S&P500 and the other major indexes bottomed out in February. So now what?

When you talk about the most important sectors in the stock market, financials certainly have to be near the top of the list. Technology is the largest sector in the S&P500 by market capitalization, but bull markets need participation out of Financials. For argument sake, we'll chalk these up as the two most important sectors in the market together representing over a third of the entire S&P500. Today, we'll focus on the Financials and why I think they are now breaking out.

There is a constant conversation among market participants about which indexes are the better representation of the stock market, particularly in the United States. While the media often quotes the Dow Jones Industrial Average daily changes, professionals tend to steer towards the S&P500. The argument normally revolves around the price-weighted nature of the Dow Jones Industrial Average vs the market-cap driven S&P500. The diversity of 500 stocks in the S&P is also a key point when compared to just 30 stocks for the Dow.

Today I want to talk about why I think the Dow Jones Industrial Average is underrated and why I think it is one of the most useful indexes for any stock market participant. 

The way I learned it, "The bigger the base, the higher in space". In other words, the longer prices consolidate in a narrow range, the more powerful the ultimate resolution. I think we have a good example of this type of behavior in the Industrial Sector. Today we're breaking down why I think there is a lot of room to the upside for these guys.

One of the things that I take most pride in is my ability to keep an open mind and consider every outcome. This goes for all markets, not just stocks. But today I have a solid if/then scenario that I think every U.S. stock market bull should be watching. If this particular index is above certain levels, not only do I see no reason to be bearish, but I think having above average long exposure is warranted.

Since late March and early April, most of the major stock market indexes around the world, U.S. included, consolidated in a sideways range. The dilemma/argument among my friends and I was in which direction would these consolidation resolve? As it turns, out, it has been to the upside. We're not just seeing the S&P500 and Dow Jones Industrial Average breaking out to new highs, we're seeing similar behavior around the world.

Today we're looking at what I think is the most bullish chart on earth.

One of the biggest reasons why we've been hesitant to be bullish of stocks, particularly as an asset class, since early April is because of the severe underperformance from bank stocks. Not only do we need participation out of Financials during bull markets, but we need them to lead. Unfortunately, they've been doing the exact opposite, and dragging stock market indexes around the world lower.

Has something changed?

These are the details from yesterday's Mystery Chart

From the desk of Tom Bruni @brunicharting

***

Both American Express and Goldman Sachs have been serious under-performers off both the August 2015 and January 2016 lows when the broader market put in major bottoms. While there have been other laggards in the Dow like Nike, Apple, and Disney, both Goldman Sachs and American Express are currently offering short setups where the risk is well-defined and the risk/reward is elevated.

We all have the freedom and ability to focus on any part of the financial markets that we want. Some people get paid to gossip about the federal reserve and others get paid to make money in the market. We all have different objectives. If you're reading this, it's probably because you do not get paid to make noise, but instead, you get paid to make money in the market. This means you don't care what stock or ETF makes you money as long as it's making you money right? We don't avoid certain topics here because it's not sexy enough for our sponsors. I don't even have any sponsors.

So today we are taking a look at Belgium. Why? Because why not?

When you talk about the "stock market", there is so much more to it than the S&P500 or what the Dow did on a given day, week or month. These are just 2 popular indexes in the most popular country in the world. But in reality, that's all they really are. One of them, the S&P500 is cap-weighted, so the biggest companies in the world, $AAPL $FB $XOM etc, drive the direction of the index. The other, the Dow Jones Industrial Average, is made up of just 30 humongous American stocks. That's what these things are.

The actual stock market, or "market of stocks", includes many more stocks and indexes, not just in the U.S., but globally. Today I want to talk about what we're seeing out of the Financials in Europe and what the implications of the recent behavior might be.

Relative Strength is something that I take very seriously. When markets are falling, we want to look for stocks holding up the best. That is what we call relative strength and tends to lead us towards the future leaders for ensuing rallies. It's the same thing on the way up. When markets are rallying, like we saw in the past week for stocks, the ones that don't participate are showing their true colors.

One of the most valuable exercises throughout my process is going through every single country around the world looking at both weekly and daily charts. One by one I make my annotations and take my notes. This is certainly time consuming, but the process makes it impossible for me not to notice similar themes going on around the globe. I promise you from the bottom of my heart that the reason I got bullish in late January after being the biggest bear on The Street coming into 2016 was because of the behavior of global markets. My turning bullish had nothing to do with the U.S. stock market.