The 2023 stock market rally is facing its first technical challenge: Morning Brief

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Thursday, January 26, 2023

Today’s newsletter is by Jared Blikre, a reporter focused on the markets on Yahoo Finance. Follow him on Twitter @SPYJared. Read this and more market news on the go with the Yahoo Finance App.

Stocks mounted an impressive comeback Wednesday, with the Nasdaq Composite (^IXIC) nearly erasing its biggest opening deficit since October. The Dow Jones Industrial Average (^DJI) eked out a small gain — its fourth straight — after spending most of the day in the red. 

Even Microsoft (MSFT) rallied back from a 4.6% early loss to end the day down only about half a percent.

As we’ve been writing, this year’s market action has been a reversal of one of last year’s most important trends, which saw the Dow outperform the Nasdaq by the widest margin in two decades. 

This year, the Nasdaq is now up 8%, substantially outperforming the Dow’s return of just under 2%. 

And while it’s unlikely a new bull market led by tech has begun, this relative performance is a tantalizing reminder of the gains tech bulls reaped in growth stocks during the ultra-low interest rate regime that had prevailed since the Global Financial Crisis. 

And with several benchmark indexes right now at key levels, a squeeze out of current trading ranges would likely generate upside momentum.

First, take a look at the highly cyclical semiconductor space, where the PHLX Semiconductor Index (^SOX) is attempting to break out of a 9-month long inverse head-and-shoulders technical formation.

A breakout higher would suggest bulls retaking control after bears dictated price action for most of 2022.

The PHLX Semiconductor Index is breaking the neckline of an inverse head and shoulders pattern.

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The PHLX Semiconductor Index is breaking the neckline of an inverse head and shoulders pattern.

If the majors follow suit and manage their own respective technical breakouts, those moves would likely generate significant momentum given the duration of the consolidation under current levels. The longer an index, stock, ETF, or any other traded asset consolidates around a particular price level, the stronger moves tend to be when the price breaks higher or lower. 

For the S&P 500, the December highs around 4,100 mark the upper end of the current range; the index closed at 4,016 on Wednesday.

Meanwhile, Nasdaq has been constrained by 11,500 on the upper end since September, while the Dow has been stuck under 34,500 since April. These indexes closed at 11,313 and 33,743, respectively, on Wednesday. 

However, it would be slightly unusual for risk markets to simply rally from here given how stretched the Nasdaq is versus the Dow — as evidenced by the below chart, which dates back to the beginning of the pandemic.

Dow Jones Industrial Average vs. Nasdaq Composite

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Dow Jones Industrial Average vs. Nasdaq Composite

The Dow’s weakness in the face of Nasdaq strength this year appears to have reached a short-term extreme, and is in the process of reversing. And extreme readings have tended to coincide with short-term highs in stocks since the bear market got under way last year. However, during the pandemic bull market of 2020-2021, these extreme readings of relative outperformance tended to do little to dent the rally.

So, if the major indexes do roll over from here, tech and growth stocks would likely sell off more than cyclical and defensive names, allowing the Dow’s performance relative to the Nasdaq to normalize in the short-term. For those concerned with news and fundamentals instead of the technicals, the narrative to explain this price action would likely fixate around a hawkish Fed, higher rates, and disappointing earnings du jour

Conversely, if chip stocks and the big benchmark indexes rip higher through current resistance, that would likely send the Dow-to-Nasdaq ratio sinking far below its current level. 

The bottom line is that stocks could very well surge from here, and the technical setup suggests we’re a crucial juncture for this year’s market rally. 

But any rally led tech stocks is likely to be fast, furious, and short-lived. 

Otherwise, markets will need to consolidate and save energy for a more durable move higher another day.

What to Watch Today


  • 8:30 a.m. ET: Chicago Fed Nat Activity Index, December (-0.05 during prior month)

  • 8:30 a.m. ET: GDP Annualized, quarter-over-quarter, Q4 Advance, (2.6% expected, 3.2% during prior quarter)

  • 8:30 a.m. ET: Personal Consumption, quarter-over-quarter, Q4 Advance (2.8% expected, 2.3% prior)

  • 8:30 a.m. ET: GDP Price Index, quarter-over-quarter, Q4 Advance (3.2% expected, 4.4% prior)

  • 8:30 a.m. ET: Core PCE, quarter-over-quarter, Q4 Advance (3.9% expected, 4.7% prior)

  • 8:30 a.m. ET: Advance Goods Trade Balance, December (-$88.5 billion expected, -$83.3 billion during prior month)

  • 8:30 a.m. ET: Wholesale Inventories, month-over-month, December Preliminary (0.5% expected, 1.0% during previous month)

  • 8:30 a.m. ET: Retail Inventories, month-over-month, December (0.2% expected, 0.1% during prior month)

  • 8:30 a.m. ET: Initial Jobless Claims, week ended Jan. 21 (205,000 expected, 190,000 during prior week)

  • 8:30 a.m. ET: Continuing Claims, week ended Jan. 14 (1.665 million expected, 1.647 million during prior week)

  • 8:30 a.m. ET: Durable Goods Orders, December Preliminary (2.5% expected, -2.1% during prior month)

  • 8:30 a.m. ET: Durables Excluding Transportation, December Preliminary (-0.2% expected, 0.1% during prior month)

  • 8:30 a.m. ET: Non-Defense Capital Goods Orders Excluding Aircraft, December Preliminary (-0.2% expected, 0.1% during prior month)

  • 8:30 a.m. ET: Non-Defense Capital Goods Shipments Excluding Aircraft, December Preliminary (-0.4% expected, 0.1% during prior month)

  • 10:00 a.m. ET: New Home Sales, December (612,000 expected, 640,000 during prior month)

  • 10:00 a.m. ET: New Home Sales, month-over-month, December (-4.4% expected, 5.8% during prior month)

  • 10:00 a.m. ET: Kansas City Fed Manufacturing Activity, January (-8 expected, -9 during prior month)


  • American Airlines (AAL), Visa (V), Archer-Daniels-Midland (ADM), Blackstone (BX), Comcast (CMCSA), Intel (INTC), JetBlue Airways (JBLU), Mastercard (MA), McCormick (MKC), Sherwin-Williams (SHW), Southwest Airlines (LUV), T. Rowe Price (TROW), Valero Energy (VLO), Xerox (XRX)

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