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Stocks set for new highs, powered by industrials: Analyst

The market could soon see new all-time highs, and one of the market's oldest group of stocks may lead the charge, according to a widely followed technician.

On Friday, the Dow Jones Industrial Average posted its best week in a month, a trend that has some analysts encouraged.

"We think the S&P 500 is about to break out to new highs this year," said Ari Wald of Oppenheimer on CNBC's "Fast Money" recently.

By Wald's chart work, industrial stocks could be the group that takes the whole market higher. Wald believes that following two years of flat performance, the sector is setting up for a bullish pattern after forming a double bottom — a price reversal pattern. This week, analysts at Strategas Research said this class of stocks was the subject of increasingly bullish sentiment. General Electric and 3M are among big industrial gainers recently.

Since hitting its low on January 20th, the XLI, the exchange traded fund (ETF) that tracks the industrials, has rallied 20 percent. That move has coincided with a broadening of the rally. According to Wald, the advance-decline line is hitting its highest level since July, indicating a healthy market.

"You can't have it both ways. If you were saying breadth was bad this year, don't tell me it's overbought now. Internal breadth is bullish," said Wald.

Wald also says something else is working in stocks: time. Bear cycles during the 1950s, 1960s, 1980s and 1990s all lasted eight months, and also saw stocks fall 20 percent. In the most recent downturn, the S&P 500 fell 15 percent over a nine-month period. "We didn't quite get the full 20 percent, but we think we've chewed up enough time," said Wald.

"Technically driven target is 2250 by year-end, so we think there's some nice upside here," said Wald.