The stock market completed a stunning seven-month round trip yesterday, with the S&P 500 and Nasdaq indexes posting new all-time highs.

For the S&P 500, which is the index most investors use to measure such things these days, that capped a swing that took stocks down nearly -20% between its prior high last September 20 and Christmas Eve, only to surge back with a spirited 2019 rebound. This year has seen the strongest start to a year for stocks since 1987.

For SMI investors, the return to new highs doesn't change much, as we're going to follow our various mechanical strategy signals whether the market is at new highs or not. But it does change the sentiment picture a little bit.

Establishing a new high basically closes the chapter on last year's correction. Until that new high was established, there was more of an open question if the bull market trend was truly still intact. This new high answers that it is, at least from a technical point of view.

A bullish sign, and yet...

That's certainly not to say it's going to be clear sailing for stocks now. We're sitting right on the threshold of what has commonly marked the dividing line between the stronger winter period (November-April) and the weaker summer period (May-October: the infamous "sell in May and go away"). Plus with stocks rallying so aggressively so far in 2019, they're clearly "overbought" and ripe for a pullback, although there's no reason to expect that to be anything serious.

More importantly, all the conditions of high valuation we've discussed in detail over the past couple years are still present. Most analysts are expecting a short-term slowdown in company earnings in the reporting season now underway and extending through next quarter. At some point there's going to be a recession and when it comes it's going to be hard for this high-valuation market to avoid a sharp bear market. But that's a problem for another day (or year!) as there's nothing pointing to an imminent U.S. recession on the horizon.

A new high is unmistakeably a bullish sign, and generally markets continue higher when rebounding to new highs like this. So for now, the Fed wins again. As they have demonstrated repeatedly since the Financial Crisis ended a decade ago, the direction of their monetary policy has the power to start — and stop — market rallies and declines. Since their January 4 flip-flop, the market has shot straight up.

There's no compelling reason to position ourselves against that general trajectory, so we'll keep following that trend until it has run its course.