February 6, 2026

Bookend rallies left the major averages mixed this week as a brutal stretch for software and big cap technology stocks rattled global markets. Stocks roared into February on Monday as investors rotated out of technology stocks and into cyclical areas of the market ahead of earnings from some of the Mag 7 and large cap technology companies. The NASDAQ got an early boost from memory chipmakers with Micron (MU), Seagate (SGT) and SanDisk (SNDK) trading sharply higher, while gains in Caterpillar (CAT) and Walmart (WMT) led the blue-chips higher. The different indexes were mixed on Tuesday as a selloff in software stocks driven by concerns of a disruption in AI models to the industry dropped the NASDAQ 336.92 points (-1.43%) with the iShares Software Sector ETF (IGV) tumbling another -4.61% and into bear market territory. Private equity firms that have invested heavily in software companies were also hit hard. The tech meltdown continued midweek with semiconductors pulling back -4.36% and AI infrastructure stocks being sold. The NASDAQ sank another -1.51%, but several indexes pushed to new highs. The Equal-Weight S&P 500 (RSP), NYSE and DJ Transportation Index caught the outflow from tech stocks and the DJIA hit an intraday new high before retreating in the afternoon. Only seven Dow stocks were red with Chevron (CVX), Johnson & Johnson (JNJ), Coca-Cola (KO), Walmart (WMT), Amgen (AMGN), Merck (MRK) and Caterpillar (CAT) posting record highs. The selloff spread to other parts of the market on Thursday triggered by a drop in Alphabet (GOOGL) after earnings and a crash in crypto currencies with Bitcoin dipping below $63k and wiping out all of the 'Trump Bump', down 50% from its October high. The bulls shook off a disappointing earnings report from Amazon (AMZN) on Friday and bought the dip driving equities sharply higher across the board with nearly every sector green led by a +4.06% bounce in Technology (XLK). After the dust settled the market groups finished the period mixed with Consumer Staples (XLP), Industrial (XLI), Materials (XLB) and Energy (XLE) at record highs, while Communication Services (XLC), Consumer Discretionary (XLY) and Technology (XLK) were lower weighed down by weakness in overweighted Mag 7 stocks. While the NASDAQ settled lower for a fourth consecutive week, the DJIA closed higher, while the S&P 500 was almost. Next week continues the onslaught of Q4 earnings with delayed jobs data from the BLS out on Wednesday.

For the period, the DJIA jumped 1223.20 points (+2.5%) and settled at 50,115.67. The S&P 500 eased 6.73 points (-0.1%) and closed at 6932.30 The NASDAQ lost 430.61 points (-1.8%) finishing at 23,031.21. The small cap Russell 2000 added 56.60 points (+2.2%) and settled at 2670.34.

Market Outlook: The technical condition is mixed after the different indexes battled back from a brutal selloff as the week ended. The technical indicators show a split market with the DJIA having a bullish cross on Friday in the MACD, a short-term trend gauge, and Momentum, as measured by the 14-day RSI, positive as the Dow broke out to a new high. The S&P 500 was negative for the year before bouncing off a key MA support level to end the week and closing back above its 50-day MA. MACD is bearish, while Momentum finished in neutral ground as the bellwether index continues to hover around the 6900 level. It's a different story at the NASDAQ as the tech heavy index lost support at both its 50 and 100-day MA's and closed below its 100-day MA as the period ended. MACD and Momentum are bearish, and the index briefly traded below its December low which historically is a precursor to a bear market. After peaking at 23 on Thursday the VIX pulled back to a more neutral level finishing the week at 17.76. While elevated, it does not suggest that traders are worried that we'll see a deeper selloff over the near-term. The secondary indexes, which market technicians like to see lead the market higher/lower outperformed with the DJ Transportation Index soaring +8.7%, while the small cap Russell 2000 gained +2.2%. The Philadelphia Semiconductor Index closed the period up +0.6%. The outperformance is a positive signal for the broader market and could indicate that the major averages have put in a short-term bottom. The cyclical sectors posting new highs is also a positive development going forward as funds flowing out of technology appears to be moving into this part of the market with four of the 11 sectors notching new record highs.

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 Positive at +3, unchanged from the previous week. Cycles B, C and D are bullish, while Cycles A and E are bearish. The CTI is projected to move to a negative configuration next week.

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, up two notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line gained 1900 units while the number of new 52-week highs exceeded the number of new lows on each session. Breadth was negative at the NASDAQ as the A/D line lost 899 units while the number of new lows out did the new highs on four of the five days. Finally, the percentage of stocks above their 50-day moving average dropped to 54.4% vs. 63.7% the previous week, while those above their 200-day moving average fell to 65.4% vs. 68.7% prior. Readings above 70.0% denote an overbought condition, while below 20% is bullish.

Underlying market breadth was mixed during the period with the NYSE Advance/Decline Line, leading indicator of market direction, making a new high on Wednesday and Friday. That confirms that outside of tech, stocks are under accumulation. New 52-week highs continue to dominate the NYSE, but the NASDAQ saw expanding new lows in the tech selloff. Without the overweighted big cap tech shares staging a rebound the NASDAQ may struggle to make much headway going forward.

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 -5, up a notch from the previous week.

Investor sentiment is bullish, but this week's selloff may have rattled market participants. The American Association of Individual Investors (AAII), saw a pullback in retail bulls as they fell to 39.7% from 44.4% and a touch above their historical average of 37.5%. That's the 10th time over the last 12 weeks that retail bullish sentiment has been above its historical average. The National Association of Active Investment Managers (NAAIM) Exposure Index saw the professionals take a little off the table falling to 84.9% from 92.6%, while the Percentage of Bullish Investment Advisors increased to 62.3%, its highest mark since November 2024. Most of these numbers were released early in the week and are likely to adjust downward over the near-term.

Market Posture: Based on the status of the Market Edge, market timing models, the 'Market Posture' is Bullish as of the week ending 11/28/2025 (DJIA - 47716.42). 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 (22) - What's Not (8): The following are the strongest and weakest Industry Groups for the period ending 2/05/26. Strongest: Metals & Mining, Transportation, Chemicals and Building Materials. Weakest: Technology Services, Insurance, Media and Healthcare Services. 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 2/05/26 were: Sector-Consumer Staples (+5.13%), Shorts (+2.11%), Value-Large Cap (+1.97%), Specialty Retail (+1.73%) and Value-Mid Cap (+1.62%). The weakest categories were: Commodity-Precious Metals (-18.02%), Sector-Internet (-9.35%), Specialty Natural Resources (-8.53%), Commodity-Base Metals (-7.32%) and Specialty Technology (-7.19%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

By David L. Blake, CMT