The S&P 500 ended 2025 with a new all-time high just a few days ago. But more importantly, how did the index reach its peak on October 27th? Over the past two months, the S&P 500 has absorbed its largest drawdown since spring (about 6% from high to low) without any lasting technical damage. More importantly, the structures formed during this period stand out. As the chart shows, this consolidation can be classified as a bullish chart formation. This is not a textbook inverted head and shoulders pattern, but the underlying shape is clear and constructive. The index managed to make another new low in December and is now entering the new year attempting to hold near its previous breakout zone. Although this process may take more time to fully develop, one consistent theme throughout 2025 is the market’s ability to digest gains, form bullish patterns, and ultimately resolve at higher levels. This has been seen repeatedly in both short and medium time frames since the April lows. This move has important implications for 2026. As always, volatile trading ranges include large daily movements, both up and down. In the chart below, going back to the spring of 2024, we highlight days with a 1% increase in blue and days with a 1% decrease in red. Not surprisingly, many of the big moves occurred during the most notable corrections of the past two years. But most important is how the character of the market changed after the S&P 500 recovered its previous high, as shown by the blue arrow. Each of these transitions was followed by sustained upside follow-through with meaningful changes in underlying conditions. The frequency of absolute movements of 1% decreased sharply. We are moving from a background dominated by volatility to one where such movements are increasingly rare, and that change is clearly visible on the charts. The S&P 500 index has re-emerged from a period of high volatility that began in late October, and if volatility subsides again, the index could not only hit new highs, but could even rise further. This outcome is far from guaranteed, as we saw in early 2025 when the January-February rally failed and gave way to a tariff-driven decline. However, for sustained progress in 2026, improvements in these same market characteristics will need to unfold along the way. Zooming out to the weekly log chart provides another perspective on the breakout of this cycle’s biggest bullish pattern. There have been four major breakouts so far, the most significant of which just occurred in 2025 as the market recovered from the tariff crash. Viewed from this favorable perspective, the recent trading range around the high looks relatively modest. This doesn’t have to happen right away, but a successful bullish pattern moves the trend forward and shows how another strong year will unfold. Going further back to 2013, the noise is filtered out and only the biggest and most durable movements are highlighted. Seen from this perspective, it is clear that the intermittent drawdowns ultimately served as preparation for the next big advance. Viewed through this lens, the rally from the April 2025 low is still relatively young and nowhere near the length of the longest trend observed over the past 12 years. Although history will never completely repeat itself, this framework provides another way to think about how things will evolve as we head into 2026. Similar adjusted developments were seen from 2012 to 2015, from 2016 to early 2018, from the coronavirus lows to the end of 2021, and from late 2022 to early 2025. Therefore, if current trends continue to follow this historical pattern, the market will still move forward broadly in the early to mid innings. For this to be possible in 2026, we need to see the bullish pattern work again. — Frank Cappelleri Founder: https://cappthesis.com Disclosure: None. All opinions expressed by CNBC Pro contributors are solely their own and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliate companies, and may have been previously disseminated on television, radio, the Internet, or another medium. The above is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect your unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor. Click here for full disclaimer.
