Trading The Close Market Recap - 01/05/2026: Semiconductor Weakness Sparks Rotation into Financials

The market kicked off the new year with a surge of momentum, but a look beneath the surface reveals a more complex and fascinating story. While the major indices closed in the green, a significant rotation of capital appears to be underway, with money flowing out of some big-cap tech names and into the financial sector. In this afternoon's Trading The Close show, Pro Trader Drew Dosek of Verified Investing dissected these critical shifts, highlighting key technical levels that could dictate the market's next major move and offering invaluable lessons from individual stock charts.

When the Leader Stumbles: Semiconductors Flash a Warning Sign

In the intricate dance of the stock market, certain sectors often lead the way, acting as a barometer for broader market health and risk appetite. The semiconductor sector, represented by the SMH ETF, is arguably one of the most important of these leaders. As Drew noted on the show, there’s a classic Wall Street adage for a reason: "When semis fail, you better bail." Today, the semis didn't fail, but they certainly stumbled in a way that should have every trader paying close attention.

The SMH gapped up at the open, clearing a key resistance level at $378.68 and hitting new all-time highs. Typically, a gap above resistance is a sign of immense strength, as the security didn't have to expend energy fighting through that level during regular trading hours. This should have paved the way for a continued push higher. Instead, the exact opposite happened. The SMH printed a topping tail in the first 10 minutes, hit the top of its parallel channel, and was aggressively sold back down, closing the day back inside its previous range.

This price action is a textbook example of profit-taking. It tells us that at these new all-time highs, large players were not looking to add to their positions but were instead unloading shares. This selling pressure was strong enough to completely erase the bullish opening gap. This is a near-term bearish signal that suggests the powerful rally in the chip sector may be running out of steam. Given that semiconductors are crucial for everything from AI and data centers to consumer electronics, this weakness could be a canary in the coal mine for the tech sector and the broader market.

A Market Divided: Key Indices at Critical Inflection Points

While the semiconductor sector sent a cautionary signal, the major indices are telling their own distinct stories, creating a divergence that warrants careful analysis. The S&P 500 and the Nasdaq 100, while both in uptrends, are facing very different technical challenges.

The S&P 500 (SPY) is currently pushing against the upper boundary of a massive parallel channel that has contained its price action since the COVID lows in 2020. This is a multi-year trend line that represents a formidable area of resistance. During today's session, the SPY briefly traded above this channel before being rejected and closing back inside. This rejection at such a significant long-term level is a critical development. While it doesn't end the bull run, it suggests that the path of least resistance may no longer be straight up.

Meanwhile, the tech-heavy Nasdaq 100 (QQQ) is exhibiting signs of more immediate weakness. It has been repeatedly testing the bottom trend line of its own parallel channel, which dates back to the April lows. As Drew pointed out, the frequency of these tests is increasing, which often precedes a breakdown. Each test weakens the support level, like tapping on a pane of glass. A decisive break below the current support at 613.70 would open the door for a move down to the next major support zone between 600 and 605. This divergence—with the broader market testing overhead resistance while the tech sector tests underlying support—is a classic sign of a market in transition.

The Great Rotation: Is Capital Fleeing Tech for Finance?

The weakness seen in semiconductors and the precarious position of the Nasdaq align with another major theme of the day: a powerful surge in the financial sector. While some heavyweight tech stocks were down, giants like JP Morgan and Goldman Sachs were on fire, both pushing to new all-time highs on significant volume. This suggests a classic sector rotation, where institutional investors are selling their high-flying tech winners and moving that capital into other areas of the market.

However, Drew raised a thought-provoking question about this rotation: why rotate into financials while they are also at all-time highs? "If investors are rotating into, let's say, safer plays out of growth and tech stock plays, they're rotating into finance while they're at all-time highs. That doesn't make the most logical sense."

This is a crucial point for investors to consider. While the move into financials provides a new source of market leadership, chasing stocks at their absolute peaks carries its own risks. A more logical approach for value-conscious investors might be to seek out beaten-down sectors with more room to run.

Technically, both JP Morgan (JPM) and Goldman Sachs (GS) are also running into the top of their own parallel channel resistance lines. JPM tagged its upper channel boundary today at a high of $337.25 before pulling back slightly. This creates a resistance zone for the stock between $335 and $338.53. Similarly, Goldman Sachs is approaching its channel top, which sits just below the psychological $1,000 level. The fact that capital is flowing into these names just as they reach major technical resistance suggests this rally could soon face headwinds.

Technical Analysis Masterclass: Lessons from the Charts

Today's market action provided several perfect examples of key technical analysis principles in action. By studying these individual charts, traders can gain a deeper understanding of how these concepts play out in real-time.

SE (SE): The Classic Break and Retest Singapore-based Sea Limited offered a textbook illustration of one of the most reliable patterns in technical analysis. After breaking a major trend line in November, the stock has been grinding its way back up. As Drew has stated repeatedly, to the point of being "repetitive and redundant," when a significant trend line breaks, price often returns to retest it from the other side. SE is now attempting that retest, running into a confluence of resistance from the old trend line around the $150 level and a prior consolidation zone just above it at $153. This is a high-probability area for the stock to stall.

Carvana (CVNA): Support as a Stretched Net Carvana's chart demonstrated the dynamic nature of support levels. On Friday, the stock plunged below the 50% line of its parallel channel, a key support level at $417.45. However, it failed to get a confirmation candle below and snapped back aggressively today, closing well above it. Drew used a brilliant analogy, describing the support level like a net: on Friday, the price stretched the net down, but today, the net recoiled, propelling the price sharply higher. This illustrates that a brief breach of a level isn't always a failure; sometimes, it's just a test before a powerful reversal.

HUT 8 (HUT): A Textbook Pattern Trigger Bitcoin miner and AI infrastructure company HUT 8 has formed a clear inverse head and shoulders pattern on its daily chart. This is a classic bottoming pattern that often signals a reversal from a downtrend to an uptrend. Today, the stock barreled through the pattern's neckline at $53.50, triggering a buy signal. The pattern comes with a calculated price target, or major move, of $76.86. A confirmation move higher tomorrow would validate the breakout, making any pullback towards the neckline (around $53.00) a potential buying opportunity.

Geopolitical Catalysts and Speculative Oil Plays

Events over the weekend concerning a conflict between the U.S. and Venezuela have ignited speculative interest in the oil sector. Venezuela possesses some of the world's thickest crude oil, and only a few refineries are equipped to handle it, including those owned by Chevron (CVX) and Valero (VLO). While any significant build-out could take years, investors are already positioning for potential long-term benefits.

Chevron's chart is particularly interesting, as it broke out of a long-term declining trend line dating back to November 2022. A confirmation of this breakout could send the stock toward the $177.35 level. Valero, on the other hand, surged 9.23% but ran directly into a major triple-top resistance at $184.79 and was rejected. A break above this level would be extremely bullish, paving the way for a move toward the top of its parallel channel near $212. These setups highlight how geopolitical news can act as a catalyst to drive price toward pre-existing technical levels.

Conclusion: Navigating a Market in Transition

The first trading day of the week delivered a powerful message: while the bulls remain in control on the surface, a significant transition is happening underneath. The profit-taking in the leading semiconductor sector, the divergence between the S&P 500 and the Nasdaq, and the aggressive rotation into financials all point to a market that is shifting its leadership and assessing its next move.

For traders, this environment demands vigilance and a deep respect for technical levels. The setups in individual stocks like SE, CVNA, and HUT provide a clear roadmap for how to apply technical principles to identify high-probability opportunities. As the market navigates these critical inflection points, a disciplined, probability-based approach will be the key to capitalizing on the opportunities that lie ahead while managing the risks of a market in flux.