This unique chart may point to where stocks are headed in the second quarter

The S&P 500 is on pace to log its best quarter since 2015, and if one unique pattern in the charts is any indication, the second quarter will be a sweet one, too.

Each move higher in a so-called stair-step pattern, tracking a gradually rising market over the last year, coincides with a larger percentage of stocks making new highs, according to Bespoke Investment Group co-founder Paul Hickey.

"That continued right up until the most recent peak on 3/1 when 25.9 percent of stocks in the S&P 500 made new highs, which was the highest single-day reading since December 2013. To us, this suggests that while there have been and will continue to be periods of sideways consolidation and pullbacks, underlying demand for equities remains positive," Hickey wrote in a recent note on some of the market's internal elements.

"The recent sideways trading in the S&P 500 is just a continuation of the stair-step pattern the market has been in for more than a year," Hickey wrote to CNBC. If the pattern continues, the next "step" will take the market higher.

As for stocks' valuations, Hickey noted they are relatively high, which continues to be one of his concerns heading into the second quarter.

"Our view is that [high valuations] are never the cause of a sell-off; you need another catalyst. So sure, the market is expensive, but history shows it can become a lot more expensive. You need a catalyst to get the market to decline," he said.

Corporate earnings, though, have staged a recovery, and Hickey remains largely bullish on the broader market.

"And so ultimately in this rally over the last year we've seen new highs continue to expand. So if we get an upward leg in the market here and we don't see new highs expand, well then that's going to be a red flag," he said Thursday in an interview on CNBC's "Trading Nation."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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