July 2, 2026

The holiday-shortened week closed with the DJIA at a new record high as investors continued to rotate out of AI-related stocks and into cyclical sectors. The NASDAQ snapped a five-day losing streak to open the period on a bounce in semiconductors and Mag 7 stocks, that erased some of the heavy losses from the prior week. The NASDAQ jumped +2.07%, while the DJIA benefited from a +4.79% spike in Alphabet (GOOGL) after it replaced Verizon (VZ) in the Dow-30. End of the quarter 'window dressing' helped boost semiconductors on Tuesday with Intel (INTC), Micron (MU) Marvel (MRVL), SanDisk (SNDK) and other chipmakers sharply higher. The DJIA also climbed to another all-time high. The S&P 500 and NASDAQ posted their best quarterly gains since 2020 as investors remain upbeat on the economy and earnings. The second half of the year kicked off with modest losses Wednesday as investors took profits in recently purchased semiconductors sending the Philadelphia Semiconductor Index down -6.27%. Crude oil prices were lower, erasing the gains from the US-Iran conflict and closed at $68.45 a barrel, its lowest price since March. Yields nudged higher during the period, but the CME Group FedWatch projects an 82% probability that the Federal Reserve will leave rates unchanged at the July FOMC Meeting. A hike in September is now a coin-toss. The market sectors closed mixed with Healthcare (XLV) outperforming up +5.21%, while Financial (XLF), Consumer Discretionary (XLY) and Communication Services (XLC) were also strong, up more than +3%. Technology (XLK) and Energy (XLE)  were the laggards. The Dow Jones and NASDAQ diverged as the week ended on selling in technology stocks, but the major averages closed out the week in the plus column. Next week is historically a positive week on low volume as traders' position for the second half of the year. However, it most likely will be contingent on whether weakness in semiconductors is contained.

For the period, the DJIA jumped 1023.96 points (+2.0%) and settled at 52900.07. The S&P 500 tacked on 129.22 points (+1.8%) and closed at 7483.24. The NASDAQ gained 535.05 points (+2.1%), finishing at 25832.67. The small cap Russell 2000 slipped 13.97 points (-0.5%) and settled at 2996.11.

Market Outlook: The technical condition of the market is again mixed with the Dow Jones, NYSE, Equal-weight S&P 500 (RSP) and Russell 2000 hitting new record highs during the week, while the NASDAQ closed back below its 50-day MA and the NASDAQ 100 and Philadelphia Semiconductor Index (SOX) dropped back to test that key support level. The technical indicators are in line with the diverging indexes for a second week as the DJIA, Russell 2000 and EQW-S&P 500 show MACD, a short-term trend gauge, in bullish ground and Momentum, as measured by the 14-day RSI, positive and improving. On the other hand, the S&P 500 and NASDAQ show slowing momentum, while MACD was negative for the NASDAQ, but improved to neutral for the S&P 500. This negative divergence usually precedes a reversal in the market, but the mixed signals don't seem to be pointing to a deeper pullback in the broader market, yet. However, if the S&P 500 and NASDAQ can't trade back above these support/resistance areas, it's more likely we'll see further weakness as the summer heats up.

A dig into the market sectors shows eight of 11 sectors holding key moving average support levels, but only Healthcare (XLV) and Industrial (XLI) were able to hit new highs this week. Despite bouncing during the period, Communication Services (XLC), Energy (XLE) and Consumer Discretionary (XLY) trade below their respective 50 and 100-day MA and are rated Avoid by Market Edge.

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 -13, down a notch from the previous week. Cycle A is bullish, while Cycles B, C, D and E are bearish. The negative CTI configuration is projected to remain in place into July.

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 Negative at -4, unchanged from the previous week. Breadth was positive at the NYSE as the Advance/Decline line added 1080 units while the number of new 52-week highs exceeded the number of new lows on all four sessions. Breadth was also positive at the NASDAQ as the A/D line gained 1691 units while the number of new highs out did the new lows on each day. Finally, the percentage of stocks above their 50-day moving average rose to 56.3% vs. 54.0% the previous week, while those above their 200-day moving average increased to 59.2% vs. 57.7% prior. Readings above 70.0% denote an overbought condition, while below 20% is bullish.

Underlying market breadth was positive with the NYSE Advance/Decline Line, a leading indicator of market direction, hitting several new highs during the week. The NASDAQ A/D Line has been moving in a fairly narrow range since early April but did show improvement this week. The number of new 52-week highs in the NASDAQ were steady, but there was sharp contraction in the number of new lows. The NASDAQ recorded 344 new lows last Thursday and only 90 on Wednesday.

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 -2, up three notches from the previous week.

There was a shift in investor sentiment as retail Bulls dropped 13.5 percentage points to a three-week low. The American Association of Individual Investors (AAII) survey saw retail bulls fall to 31.4% and below the 37.5% historical average. The National Association of Active Investment Managers (NAAIM) Exposure Index has the Bulls 'all in' at 98.6%, the most exposure to equities since the last week in December.  In addition, FINRA reported a jump in May margin to a new record high as investors load up on equities, which raises a red caution flag.

Market Posture: Based on the status of the Market Edge, market timing models, the 'Market Posture' is Bearish as of the week ending 05/15/2026 (DJIA - 50,579.70). For a closer look at the technical indicators and studies that make up the market timing models, check out the tables located below.

Industry Segment Rankings: What's Hot (74) - What's Not (98): The following are the strongest and weakest Industry Segments for the period ending 7/01/26. Strongest: Health Insurance, Business Communication Services, Semiconductors and Security Software & Systems. Weakest: Pulp & Paper Products, Gold, Silver and Copper. 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 7/01/26 were: Sector-Internet (+4.83%), Specialty Health (+3.96%), Specialty Financial (+3.03%), Growth-Large Cap (+2.51%) and Specialty Communications (+2.40%). The weakest categories were: Bond-Government Long Term (-2.00%), Sector-Energy (-1.97%), Shorts (-1.46%), Bond-Inflation Protected (-0.91%) and Commodity-Energy (-0.81%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

By David L. Blake, CMT