February 27, 2026

Off and on AI disruption concerns whipsawed the major averages lower, higher and finally lower again ahead of the weekend with the major averages down across the board. The selloff was concentrated in a select group of sectors as investors continued to rotate into cyclical and 'old school' companies. An 821-point (-1.66%) drop in the DJIA on Monday was followed by a two-day reversal in the different indexes that brought the S&P 500 and NASDAQ back into the plus column for the week and the Philadelphia Semiconductor Index (SOX) to a new record high.  However, investors sold the news after blow out earnings from chip maker Nvidia (NVDA) on Wednesday, leading to a -1.18% dip in the NASDAQ and a -3.19% drop in the SOX.  Market participants were cautious ahead of Friday's wholesale inflation report in the January PPI and for good reason. Core-PPI jumped +0.8% MoM and +3.6% YoY triggering a steep selloff at the open as investors shifted into safe-haven assets including bonds and precious metals.  The rate on the 10-year T-Bill closed at 3.959%. Selective buying saw seven of the 11 sectors close the period positive led by defensive market groups including Utilities (XLU), Consumer Staples (XLP), Healthcare (XLV) and Energy (XLE). Offsetting solid gains in those sectors was weakness in Financial (XLF) on selling in private equity stocks and growing fears of credit problems. The Financial sector has fallen -11% y-t-d breaking key support levels and traded down to a level last seen in June 2025 before bouncing back above its November low midweek. The Technology (XLK) and Consumer Discretionary (XLY) sectors are also negative for the year, trading below their respective 50 and 100-day MA. While geopolitical concerns will be on investor minds over the weekend, next week's February employment report is likely to keep volatility high as traders navigate where AI driven disruption could next impact specific industries.

For the period, the DJIA lost 648.05 points (-1.3%) and settled at 48977.92. The S&P 500 slipped 30.63 points (-0.4%) and closed at 6878.88. The NASDAQ fell 217.86 points (-1.0%) finishing at 22,668.21. The small cap Russell 2000 gave up 31.42 points (-1.2%) and settled at 2632.36.

Market Outlook: The technical condition of the market deteriorated this week but remains mixed with the different indexes flirting with new highs or struggling to hold key support levels, while others fail at key resistance. New highs were hit by the NYSE, Philadelphia Semiconductor Index (SOX), Equal Weight S&P 500 (RSP) and DJ Utility Index, while every bounce in the tech heavy NASDAQ and NASDAQ 100 has stalled at their respective 100-day MA and are in a bearish chart pattern of lower highs and lower lows going back to January. In addition, the NASDAQ is trading below its December low, a bearish condition. The S&P 500 has been stuck in a trading range between 6800 and 7000 since December and is currently stuck between its 50 and 100-day MA. The technical indicators are mostly negative with MACD a short-term trend gauge, in bearish ground for the different indexes and Momentum, as measured by the 14-day RSI, neutral to negative. On the flip side of this, the major averages were able to hold above the prior week's intraday low, and underlying breadth was slightly positive. That is reflective of the rotation into safer assets as investors are choosing to stay in the market and wait out the headwinds. This week the Energy (XLE), Consumer Staples (XLP), Utilities (XLU) and REITs (XLRE) sectors all hit new record highs. That's in contrast to the growth sectors, including Financial (XLF), Technology (XLK) and Consumer Discretionary (XLY), struggling and down for the year. It is unlikely that the major averages will be able to make much headway however, without help from the technology and banking stocks. Finally, the Market Edge Cyclical Trend Index (CTI) has transitioned into a bearish setup indicating that downward pressure on the market should continue over the near-term. While it doesn't look like we're due for a meltdown, a cautious position would prudent at this juncture. A downside target for the DJIA has been set at 47,500 and 6700 for the S&P 500. The NASDAQ could trade down to 22,000.

A chart of these indicators can be found by going to the Market Edge Home page and clicking on Market Recap, which is on the right-hand side of the page just below the Second Opinion Status numbers.

Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times.

Currently, the CTI is Negative at -4, unchanged from the previous week. Cycles A, C and D are bullish, while Cycles B and E are bearish. The CTI is projected to remain in a negative configuration through March.

Momentum Index (MI): The markets momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish.

The Momentum Index is Neutral at +2, down two notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line gained 71 units while the number of new 52-week highs exceeded the number of new lows on each session. Breadth was also positive at the NASDAQ as the A/D line added 170 units while the number of new highs out did the new lows on all five days. Finally, the percentage of stocks above their 50-day moving average rose to 63.3% vs. 62.4% the previous week, while those above their 200-day moving average eased to 67.2% vs. 67.9% prior. Readings above 70.0% denote an overbought condition, while below 20% is bullish.

Underlying market breadth was positive during the period with the NYSE Advance/Decline Line, a leading indicator of market direction, closing at another new high on Thursday. That confirms that stocks are under accumulation as investors continue to buy the dips. New 52-week highs outnumbered the new lows on both the NYSE and NASDAQ.

Sentiment Index (SI): Measuring the market's Bullish or Bearish sentiment is important when attempting to determine the market's future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. The Sentiment Index is Negative at -4, unchanged from the previous week.

Investor sentiment is now mixed. The American Association of Individual Investors (AAII), saw a dip in retail bulls for a fourth consecutive week and retail bears outnumber the bulls for a second straight week. The National Association of Active Investment Managers (NAAIM) Exposure Index fell to 74.9%, that's the lowest percentage since mid-May 2025. The Percentage of Bullish Investment Advisors increased to a bearish 55.6% from 54.7% the prior week. The numbers confirm that investors are growing more cautious on equities as we move into March, but FINRA reported that January Margin accounts rose for a ninth consecutive month to a record high. That could induce more selling from margin calls if the major averages suffer a steeper selloff.

Market Posture: Based on the status of the Market Edge, market timing models, the 'Market Posture' is Bearish as of the week ending 02/27/2026 (DJIA - 48977.92). For a closer look at the technical indicators and studies that make up the market timing models, check out the tables located below.

Industry Group Rankings: What's Hot (23) - What's Not (7): The following are the strongest and weakest Industry Groups for the period ending 2/26/26. Strongest: Metals & Mining, Agriculture, Transportation and Conglomerates. Weakest: Technology Services, Insurance, Financial Services and Media. To review all the Industry Group rankings in the Market Edge universe, click on the Industry Group tab.

ETF Center: The top performing ETF categories for the week ending 2/26/26 were: Commodity-Precious Metals (+5.97%), Sector-Basic Materials (+4.32%), Specialty Natural Resources (+3.28%), Commodity-Base Metals (+2.73%) and specialty Utilities (+1.79%). The weakest categories were: Shorts (-1.47%), Commodity-Energy (-1.37%) and Value-Small Cap (-0.22%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

By David L. Blake, CMT