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The Mexican stock market tested its July breakout to all-time highs -- with resounding success.

We’ve mentioned a number of markets over the past few weeks that were testing key levels within the context of the mini-selloff. Most of them pertained to trendlines and, following Wednesday’s Fed meeting, most of the tests were successful. Today’s Chart Of The Day dealt with a test of a different level. In July, we mentioned that after threatening for 3 years, the main Mexican IPC Stock Index was at long last breaking out to new all-time highs (of course, priced in Pesos). Following a brief and successful test of that breakout level in early August, the IPC resumed its post-breakout foray to new highs. Over the past month, the index has retreated to again test the breakout level. It has passed that test so far -- with flying colors.

Witness this week’s reaction of the IPC upon testing the former highs of the past 3.5 years.

On this close-up chart, it is easier to see the explosive reaction to the breakout test.

After the IPC’s month-long pullback bottomed a week ago, the index leapt some 5% this week, so far. What you want to see in a breakout is follow-through, which the IPC demonstrated in July-August. And upon a test of the breakout point, you want to see an explosive reaction back to the upside. This is a textbook example of just that.

This does not guarantee Mexican stocks will continue their ascent into all-time high ground. However, along with the 3 and a half year consolidation at the highs, this resounding response to the breakout level would seem to bode very well for the Mexican market

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More from Dana Lyons, JLFMI and My401kPro.

After a 4-year consolidation, Mexico’s stock market finally broke out to all-time highs.

It’s been a very interesting month in global financial markets. On the one hand, almost every asset class in the U.S. -- from stocks to bonds to real estate -- has broken out to all-time highs. Meanwhile, for many international equity markets -- from Europe and Germany to Japan and elsewhere -- it was all they could do not to fall off the proverbial cliff in the aftermath of Brexit. However, despite the seeming U.S. monopoly on financial asset performance at the moment, there are a few other hot spots starting to pop up around the globe. One such hot spot is close enough to receive its heat via convection from the U.S.: Mexico.

Specifically, after nearly tripling from 2008 to early 2013, Mexico’s IPC Stock Index has spent the past 3.5 years consolidating those gains. In fact, over the past 4.5 years, the index has traded within a 20% range. Through that range-bound action, the IPC has oddly alternated displays of relative strength (by not going down as much during global selloffs) and relative weakness (by failing to mount any sustainable advances during global rallies). This episode has finally (perhaps) been broken with the IPC’s breakout to new all-time highs in the past few days.

So is it all clear sailing now for Mexican stocks? Obviously, there is no way to know for sure, but clearing 3.5 years of overhead supply is obviously a significant hurdle. Folks like to opine about the potential pent up fuel in the S&P 500 following its 2-plus years of range-bound action. Mexican stocks have been running in place for nearly twice as long so the notion of an explosive and durable rally following this long-awaited breakout is understandable.

On the other hand, on a longer-term basis, the Mexican market may not have quite as much left in the tank as some other markets. Consider the fact that while other markets have done very well since the 2008-2009 lows, much of that effort was spent playing catch-up. Indeed, while the S&P 500, for example, is up threefold from the 2009 lows, it is "only” up about 40% since 2000. Conversely, the IPC Index is up roughly 600% since 2000. So it hasn’t had to battle the secular bear market forces that many of its fellow global markets have.

That said, even if the Mexican secular bull market is getting old in the tooth, it does not at all preclude a substantial intermediate or longer-term rally here. In fact, while we are not making this forecast, the rally could certainly extend for years, based on secular cycle trends.

For now, we’ll take it one day at a time. As long as Mexican stocks can hold above the long-awaited breakout line, the sky’s the limit. Should they fail to hold, the resultant false breakout could usher in a potentially nasty decline.

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More from Dana Lyons, JLFMI and My401kPro.