This time around last year I was warning that we could get a stock market sell-off into year end. How right it was to be selling stocks ahead of it. Many investors were caught off guard and became, consequently, very negative and fearful going forward. Despite the markets having rebounded nicely since then, sentiment didn’t change much even though we’re just starting to see breadth expansion with more and more breakouts higher out of roughly two year long bases, see Are you ready for a stock market rally?.

So, what if this year will be the total opposite of last Q4? Meaning, could we see a broad based rally into holiday season? Let’s dive straight into it.

Many investors were pointing out that a not so strong breadth could imply weakness ahead. Even though it could have been better, it was improving under the surface. It will hard to negate that breadth is improving when even the small cap index, Russell 2000, with 2000 stocks, is breaking out higher.

But it’s not only the small caps. We’re seeing this everywhere. European broad index Stoxx 600 also broke out recently and is testing all time highs.

Until recently one just couldn’t say all time highs and Europe in the same sentence. What if this sleeping beast wakes up all of a sudden? We could start a secular bull run in Europe! We haven’t seen a sustained rally here for 20 years now.

Tech stocks have been one the best sectors in the past years. But many forgot about other lagging sectors. We’re just starting to see fresh and very strong breakouts in them too. Healthcare stocks are one such example.

Financials, too, could join the party and break out to all time highs. This would push them above highs prior to the great financial crisis in 2008.

Industrial stocks is one of the sectors that should be nose diving if we’re headed into a full blown crisis, don’t you think? Rather it broke out to fresh all time highs and is possibly forming a tight bullish flag.

It’s really hard to be bearish if we’re seeing so much evidence of breadth expansion with more and more stocks breaking to all time highs. While S&P 500 index continues to be in a strong up trend with prices above 3000, I think there should be no doubt we should be buying pullbacks rather than fading strength. What do you think?

ChartingTrades.com is a blog of CT Capital Ltd.

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