It’s that time of year when the stock market feels almost magical. Holiday lights are up, trading floors are quieter, and the major indexes keep grinding higher. Just this week, the benchmark index closed at a fresh all-time high, capping off what’s been an impressive run through 2025.
But here’s the thing – not everyone is popping champagne just yet. I’ve been following market commentary for years, and there’s something about these late-stage rallies that always makes me pause. Is this the calm before a shift, or just another leg up in a long bull market? One seasoned chart analyst is leaning toward caution, and her reasoning makes a lot of sense when you dig into the details.
A Record Close with Some Underlying Concerns
The numbers look fantastic on the surface. The broad market index rose about half a percent in the final session before the Christmas break, finishing at a new record level around 6,910. That puts yearly gains at a solid 17.5%, putting it on pace for yet another year of strong double-digit returns.
Three consecutive years like this? It’s the kind of performance that makes long-term investors smile. Yet beneath those headline-grabbing highs, some technical signals are flashing yellow rather than green.
Katie Stockton, a well-regarded technical analyst and founder of a research firm focused on chart patterns, recently shared her thoughts on morning television. She pointed out something I’ve noticed myself – the market’s upward move has felt choppier lately.
The Shift in Momentum Since Mid-Fall
According to Stockton, momentum started cooling off around mid-October. It’s not that the market has turned dramatically lower; it’s more about the character of the advance changing.
You can feel it when you watch the daily swings. There have been a dozen sessions with moves exceeding one percent since early October – and more than half of those big days were actually declines. That’s quite a contrast from the smoother ride we saw earlier in the year.
“Since mid-October, we’ve seen a loss of momentum. You feel the ups and downs; it’s more volatile.”
– Katie Stockton, technical analyst
This kind of environment doesn’t scream bear market, but it does suggest the easy gains might be behind us for now. Intermediate-term momentum indicators, which look at trends over several weeks to months, have been rolling over. That’s the sort of development that puts analysts on alert for a potential deeper pullback.
What Would Change the Short-Term Outlook?
Stockton was pretty specific about what could flip the script back to bullish. A decisive close above roughly 6,911 would act as a positive catalyst, potentially confirming that buyers remain in control.
Without that breakout, though, she expects the market to stay in corrective mode. In plain English, that means more sideways or downward pressure until clearer buying conviction returns.
I’ve found these kinds of near-term levels useful to watch myself. They’re not perfect predictors, but when the market fails to clear a prior high by even a small margin, it often signals indecision among big players.
Holiday Trading Volume Tells Its Own Story
Another factor worth considering is how thin trading has become this week. With markets closed for Christmas and an early close on Christmas Eve, participation dropped noticeably.
The most popular exchange-traded fund tracking the broad index saw volume well below its recent average – about 25% lighter than usual. Across all U.S. exchanges, total shares traded came in significantly under the typical daily figure.
Low volume during rallies can sometimes be a red flag. Moves made on light participation are easier to reverse when full-time traders return after the holidays. It’s one of those subtle details that doesn’t make headlines but experienced market watchers pay attention to.
- Lower volume often exaggerates price moves in either direction
- Professional traders tend to step away during holiday periods
- Post-holiday sessions frequently see increased volatility as positions are readjusted
- Thin markets can lead to quick reversals if sentiment shifts
Why Corrections Aren’t Necessarily Bad News
Let’s be clear – nobody is predicting a crash here. Stockton’s view is more about expecting a healthy pause or retracement after a strong run. In my experience, these kinds of breathing spells are actually normal and often set the stage for the next sustainable advance.
Think about how athletes perform. You can’t sprint at full speed forever without resting. Markets work similarly. After big gains, some consolidation or even a 5-10% pullback helps reset overbought conditions and brings in fresh buyers at better prices.
Perhaps the most interesting aspect is how investors react psychologically. When everything goes straight up, complacency can creep in. A moderate decline shakes out weak hands and rebuilds a healthier foundation.
Historical Context for Current Levels
Looking back, we’ve seen similar setups before. Extended rallies followed by increased volatility and momentum divergence often precede periods of consolidation. It’s not a perfect science, but the pattern appears regularly enough to warrant respect.
The current yearly gain of 17.5% isn’t extreme by historical standards, but the concentration in a handful of large-cap growth names has been notable. When leadership narrows, the overall market sometimes needs time to broaden out or correct excesses.
That doesn’t mean selling everything and hiding in cash. It just suggests being more selective and perhaps keeping some powder dry for better entry points.
Practical Takeaways for Individual Investors
So what should regular investors do with this information? First, avoid knee-jerk reactions. Record highs are a good problem to have.
Second, consider reviewing your portfolio’s risk exposure. Are you overly concentrated in the areas that drove most of 2025’s gains? Maybe trimming winners and reallocating to laggards could make sense.
Third, patience often pays off during choppy periods. Waiting for clearer signals – either a confirmed breakout higher or a decisive breakdown lower – can prevent unnecessary trading costs and emotional stress.
- Monitor key levels around recent highs closely
- Pay attention to volume trends when assessing move validity
- Consider raising a modest amount of cash if fully invested
- Look for relative strength in individual holdings during weakness
- Remember that corrections create opportunities for long-term investors
At the end of the day, markets climb walls of worry. The fact that some respected voices are expressing caution while prices hit records is actually pretty typical at major turning points – whether those turns prove temporary or more meaningful.
The next few weeks, once regular trading volume returns, should provide clearer clues about whether this is just holiday noise or the start of something bigger. Until then, staying informed without overreacting seems like the smart play.
Whatever happens, remember why most of us invest in the first place – to build wealth over time through quality companies at reasonable prices. Short-term wiggles, even meaningful ones, rarely derail properly constructed long-term plans.
Markets will keep moving, analysts will keep analyzing, and opportunities will keep appearing. The key is staying engaged while maintaining perspective. Here’s to a prosperous new year – whatever path the market takes to get there.
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