Technical analysis: A weekly class for beginners

Bull Market Meets New Tests

The U.S. stock market enters 2026 having delivered strong returns for three straight years, with the S&P 500 posting gains of roughly 26% in 2023, 25% in 2024, and nearly 18% in 2025, largely propelled by artificial intelligence investment and resilient corporate earnings. This extended run has left valuations stretched, with high price-to-earnings multiples reflecting optimism about continued profit growth in the mid-teens for 2026.

Yet early signs in February 2026 point to shifting dynamics. Momentum in the 'Magnificent Seven' tech stocks has cooled, with rotation into small caps, industrials, and other real-economy sectors gaining traction amid falling short-term interest rates and stronger manufacturing data. The S&P 500 trades near record levels but shows limited year-to-date progress in some sessions, while the Nasdaq has lagged, reflecting broader unease.

Volatility is ticking higher, consistent with seasonal tendencies and amplified by external pressures such as U.S.-Iran tensions, potential tariff developments, and the looming 2026 midterm elections. Cycle analyses from multiple time frames suggest a window of increased turbulence around March, potentially marking a peak before sharper downside moves.

These conditions create tension between the bullish base case—supported by expected earnings expansion and accommodative Fed policy—and the risks of complacency. High concentration in a few names means any earnings shortfall could trigger outsized reactions, while the broadening rally offers opportunities but demands better identification of trends and reversals. Technical tools become critical for navigating these crosscurrents, distinguishing sustained moves from false signals in a market no longer carried solely by AI hype.