The S & P 500 concludes 2025 after reaching a fresh all-time high just a few days ago. What’s more telling, however, is how the index worked its way back to that Oct. 27 peak. Over the past two months, the S & P 500 has absorbed its largest drawdown since the spring — roughly 6% peak-to-trough — without any lasting technical damage. More importantly, it is the structure formed during this period that stands out. As the chart shows, this consolidation can be categorized as a bullish chart formation. While it is not a textbook inverse head-and-shoulders pattern, the underlying shape is clear and constructive. The index successfully carved out a higher low in December and now enters the new year attempting to hold near its prior breakout zone. This process may take additional time to fully develop, but one consistent theme throughout 2025 has been the market’s ability to digest gains, form bullish patterns and ultimately resolve higher. We have seen this repeatedly since the April low, across both short- and intermediate-term timeframes — a dynamic that carries important implications as we head into 2026. As is always the case, volatile trading ranges contain a lot of large daily moves — both up and down. In the chart below, we highlight each of the 1% up days in blue and 1% down days in red , going back to the spring of 2024. Not surprisingly, many of the large moves occurred during the most pronounced corrective phases of the past two years. What matters most, however, is how the market’s character changed once the S & P 500 regained its prior highs, as highlighted by the blue arrows. Each of these transitions was followed by sustained upside follow-through, accompanied by a meaningful shift in underlying conditions. The frequency of 1% absolute moves fell sharply — shifting from a volatility-dominated backdrop to one where such moves became increasingly rare, a change that is clearly visible on the chart. With the S & P 500 once again emerging from a highly volatile period that began in late October, the index has the potential not only to make new highs, but to extend further if volatility compresses once again. This outcome is far from guaranteed — as we saw in early 2025, when the January–February rally failed and gave way to the tariff-driven sell-off. But if a durable advance is to develop in 2026, this same improvement in market character will need to unfold along the way. Zooming out to the weekly log chart provides another perspective on the largest bullish pattern breakouts of this cycle. To date, there have been four major breakouts, with the most significant — by far — having just unfolded in 2025 as the market rebounded from the tariff-induced crash. From this vantage point, the most recent trading range near the highs appears relatively modest. This does not need to happen immediately, but it does illustrate how another strong year could unfold — with trend progression driven by successful bullish patterns. Looking back even further to a 2013-present view filters out the noise and highlights only the largest, most durable moves. From this perspective, it’s clear that intermittent drawdowns ultimately served as setups for the next major advance. Seen through this lens, the rally off the April 2025 low is still relatively young and nowhere near the length of the longest trends observed over the past 12 years. While history never repeats perfectly, this framework offers another way to think about how conditions could evolve into 2026. Similar post-correction advances occurred from 2012 through 2015, from 2016 into early 2018, from the Covid lows through the end of 2021, and again from late 2022 into early 2025. Thus, if the current trend continues to follow this historical pattern, the market may still be in the early-to-middle innings of a broader advance. For any of this to be possible in 2026, we’ll once again need to see bullish patterns work. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
