The first quarter of 2019 is officially in the books. And what a quarter it was.
The big S&P 500 index charged 13.65% higher on a total return basis, essentially tied for the second-best Q1 for the big index in the last 30 years.
Now, the weight of the evidence suggests that there could be more where that came from. Simply put, with U.S. stocks in full-blown breakout-mode this spring, the market looks likely to hit new all-time highs in the near term.
To figure out how to trade this market in 2019, we're turning to the charts for a technical look.
To understand the mechanics behind the broad market's move higher year-to-date, it's important to understand context; stocks ended 2018 in equally rare fashion, finishing the calendar year with the worst quarter since 2008.
So while the first quarter does seem exceptional, it was magnified by a necessary case of mean reversion. That fact helps minimize the risk that markets are overbought from a momentum standpoint heading into Q2.
Likewise, the S&P has been extremely technically obedient of late, a fact that boosts confidence in the technical outlook we're seeing right now.
In the intermediate-term, all the technical evidence points to upside here.
The S&P has been forming a slightly modified take on an inverse head-and-shoulders pattern since October, and so have many of its constituent stocks. That pattern broke out above key resistance at 2,810, clearing the way to the upside move we're seeing now.
Prior highs set back in September 2018 are the next level in Mr. Market's crosshairs, even if they put up some semblance of resistance as market participants digest some gains after an abrupt return to volatility.
I realize that the chart above looks fairly "noisy". But it all boils down to one conclusion: more upside is the high-probability trade from here.
Longer term, the context is much simpler. And it comes to the exact same conclusion:
The chart above shows the last seven years of the S&P with weekly price bars. You don't need to be an expert technical trader to figure out what's happening in the price action - the setup in play right now is about as simple as they get.
The S&P 500 remains in a secular uptrend, catching a bid trendline support in the final days of 2018. Similar support tests have been separated by about three years over the course of this uptrend, and that pattern has remained consistent here.
If the broad market does what it did during similar support tests in late 2012 and early 2016, we're in store for new all-time highs in the months ahead.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.