Can you feel it? That quiet hum of anticipation as we flip the calendar to a new year. The stock market just wrapped up 2025 with fresh all-time highs, but for many investors, the real question isn’t about what happened last year—it’s about what’s coming next. I’ve spent countless hours staring at charts over the years, and right now, something intriguing is taking shape that has me genuinely excited about 2026.
Why the Charts Are Screaming “Bullish” for 2026
The S&P 500 didn’t just grind higher in 2025. It navigated some real turbulence along the way, including a sharp but brief drawdown tied to trade tensions. Yet each time the market pulled back, it managed to hold key levels and build constructive patterns. In my experience, that’s exactly the kind of resilient price action that sets the stage for the next leg higher.
Perhaps the most interesting aspect is how the index handled its latest consolidation phase over the past couple of months. We’re talking about a roughly 6% peak-to-trough dip—nothing catastrophic, but enough to shake out weak hands. What stands out, though, is the structure that emerged during this period.
A Classic Bullish Setup in Disguise
Technicians love clean patterns, and while this one isn’t straight out of a textbook, it has all the hallmarks of a bullish continuation formation. Think of it as a loose inverse head-and-shoulders or simply a higher low being carved out right near prior breakout territory.
The December low respected important support, and now the index is attempting to stabilize around levels that previously acted as resistance. This kind of retest and hold is textbook stuff. Markets rarely shoot straight up without pausing to digest gains, and 2025 has been a masterclass in exactly that—pausing, building bases, then resolving higher.
We’ve seen this movie before multiple times since the spring lows earlier in the year. Short-term dips form patterns, intermediate-term ranges tighten, and eventually price breaks out to new highs. If that rhythm continues into 2026, well, you can probably guess where this is headed.
The market’s ability to repeatedly form bullish patterns after corrections has been one of the defining characteristics of this cycle.
Volatility Tells an Even Bigger Story
One thing I’ve learned over the years is to pay close attention to how the market feels during different phases. Volatile stretches with big daily swings tend to scare people out, but they often mark the exact moments when the next calm, trending period is being set up.
Look back over the past eighteen months or so. Whenever the S&P 500 experienced clusters of 1% up or down days, it usually coincided with corrective phases. But here’s the key: once the index reclaimed prior highs, something shifted. Those wild swings became far less frequent.
It’s almost like the market exhales. Volatility compresses, and steady upside follow-through takes over. We’ve watched this transition play out several times now, each marked by a noticeable drop in big daily moves and a shift toward more controlled advances.
- Early recovery phases: High frequency of 1%+ moves in both directions
- Post-breakout periods: Sharp decline in volatility, smoother trends
- Current setup: Emerging from another volatile pocket near highs
Coming out of the late-autumn volatility spike, the stage appears set for a similar calming effect. Of course, nothing is guaranteed—remember how the early 2025 rally fizzled before the bigger trade-related sell-off—but if conditions stabilize, reduced volatility could provide the fuel for a sustained move higher.
Zooming Out: The Bigger Cycle Perspective
Sometimes it’s easy to get lost in the day-to-day noise. That’s why I frequently pull up longer-term charts to regain perspective. On a weekly log scale, the current bull cycle’s major breakouts really stand out.
We’ve had four significant upside resolutions in recent years, with the most recent one—following the sharp trade-induced correction—being the most powerful by a wide margin. From this viewpoint, the current trading range near all-time highs looks almost insignificant. It’s just a pause before the next potential push.
Step back even further, say to 2013, and the pattern becomes clearer. Major drawdowns have consistently acted as launching pads for the next multi-year advance. The rally that began earlier in 2025 still feels relatively young compared to some of the longest trends we’ve seen over the past decade.
History shows that post-correction advances can run far longer than most investors expect.
Similar setups played out from 2012 to 2015, again from 2016 into early 2018, then from the pandemic lows through 2021, and once more from late 2022 into 2025. If the current trend follows that script, we might only be in the middle innings of this broader move.
What Could Drive the Next Leg Higher
So what needs to happen for 2026 to deliver another strong year? First and foremost, those bullish patterns need to keep working. Price action has to respect support levels and resolve consolidations to the upside.
Beyond the technicals, underlying market breadth and participation will matter immensely. We’ve already seen signs of improving internals during recent recoveries, which is encouraging. Leadership rotating into new areas while former leaders consolidate healthily is classic bull market behavior.
Interest rates and economic growth expectations will obviously play a role too. But from a pure chart perspective, the setup remains constructive as long as key moving averages hold and momentum indicators stay positive.
- Successful retests of breakout zones
- Compression in realized volatility
- Expanding breadth and participation
- Respect for long-term trend lines
Check enough of those boxes, and the path of least resistance points higher.
Risks Worth Watching Closely
Look, I’m optimistic based on what the charts are showing, but I’m not wearing rose-colored glasses. Markets can surprise even the most prepared investors. Policy shifts, unexpected economic data, or geopolitical flare-ups can quickly change the tone.
The early 2025 example serves as a reminder—strong starts can falter if catalysts emerge. That’s why risk management remains crucial no matter how bullish the setup appears.
Key levels to monitor include the recent December lows and major moving averages on monthly charts. A clean break below those would shift the narrative considerably and likely trigger defensive positioning.
Positioning for Potential Upside in 2026
If the bullish scenario plays out, staying invested through periods of consolidation has historically paid off. That doesn’t mean going all-in blindly—dollar-cost averaging into strength and maintaining diversification makes sense.
Areas showing relative strength during recent pullbacks often lead the next advance. Keeping an eye on those while managing overall portfolio risk feels like the prudent approach heading into the new year.
At the end of the day, markets climb walls of worry. The fact that many remain skeptical despite new highs actually fits the pattern we’ve seen during healthy bull runs. Maybe that’s the final piece of the puzzle suggesting 2026 could surprise to the upside.
Whatever happens, one thing feels certain: the coming year will provide plenty of opportunities for those paying attention to price action and staying adaptable. Here’s to a prosperous 2026.
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