Stocks Slip After Record Highs – A Key Market Test Ahead

Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

Markets Face a Key Test as Early Gains Reverse Sharply

The major indexes declined during the holiday-shortened week. With markets closed Monday in observance of Presidents’ Day, stocks started the week trending higher on Tuesday, leading to the S&P 500 closing at record highs on Tuesday and Wednesday. However, sharp losses in the latter half of the week erased those early gains, sending the major indexes lower by week’s end.

Friday’s session was particularly weak, with the indices finishing at or near key short-term support. The small-cap index (IWM) and the transportation index (TRAN) were both negatively diverging throughout the week, leading the broader indices lower. In fact, the Russell 2000 is now negative on the year.

Meanwhile, China-based stocks surged, with tech giant Alibaba (BABA) rallying over 15% on strong earnings. Energy minerals, electronic technology, and communications were the strongest-performing sectors during the week, while retail trade, commercial services, and health services lagged.

Elsewhere, gold hit new all-time highs, while Bitcoin and the crypto market remained relatively flat, with Bitcoin still trading firmly within January’s range.

The Bigger Picture: Market Trends in 2025

Despite early-year volatility, global stock markets have mostly trended higher in 2025. As of February 20, the S&P 500 is up about 4%, while the MSCI World Index has gained 5%. This is noteworthy given the market’s strong performance in 2023 and 2024.

Mega-cap technology stocks entered 2025 somewhat vulnerable after the “Magnificent 7” surged over 150% between 2023 and 2024. While their valuations remain extended, they’re not at the extreme levels seen during the 1999 Tech Bubble, thanks to robust earnings growth for most of these companies.

Last year, tech stocks drove over 50% of the S&P 500’s returns, with the Magnificent 7 dominating the first half of 2024. This year, performance has been mixed, with only two of the seven outperforming the S&P 500.

So far in 2025, 10 of the 11 S&P 500 sectors are positive, with financials, energy, and healthcare leading while technology and consumer discretionary have lagged.

What’s Next? A Critical Market Test Ahead

Next week should provide key clues about the market’s near-term direction, as major support levels are likely to be tested early in the week. A break below these levels could lead to a sharp pullback and a test of lower support zones. This is shaping up to be a pivotal test of market resilience—will stocks extend their intermediate uptrend, or will outside pressures finally lead to meaningful technical damage?

Either way, we’ll, as always, “Trade What We See Technically, Not What We Think.”

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