January’s early gains could bode well for the stock market this year, but technical analysts warn the market is likely to continue to be choppy and could take another run at last year’s lows. The first five days of the year are on track to close higher, following a positive gain of 0.8% in the S & P 500 during the Santa Claus rally period. Those are both good signs for 2023 , based on historic patterns. “The first five days up move happens two out of every three years. The average full year percent change then is 12.9%, versus a more normal 8.9% gain,” in all years since World War II, said Sam Stovall, chief investment strategist at CFRA. According to the Stock Trader’s Almanac, the Santa rally period was the final five days of 2022 and first two trading days of 2023. When the first five days are positive, there’s a better chance for a stronger January and a better year. The Wall Street saying, “so goes January, so goes the year,” has rung true 87% of the time when January was positive, for an average gain of 15.9% for the full year, Stovall said. For now, there are a few positives that are encouraging the analysts who watch charts about the very short-term action. Stocks surged Friday after the December employment report showed job growth slowing slightly but wage gains decelerating faster than economists expected. That led some investors to hope receding inflation will result in a soft landing for the economy and a less aggressive Federal Reserve. “You would think Friday’s action could have some momentum heading into Thursday when we see CPI,” said Scott Redler, partner at T3Live.com. “The consensus shorts have something to think about if it comes in light like some of the other inflation reports coming out of Europe. Nobody wants to be too short ahead of it. But I don’t think bigger institutions are in a rush to put on more risk knowing later this year could be choppier times, as earnings are being ratcheted down. Basically, this is a mechanical move.” The consumer price index for December is expected to show that inflation is slowing from November’s 7.1% annual pace. Redler expects the S & P 500 could reach 3,980 to 4,000 before reversing lower. The S & P 500 was trading at about 3,940 on Monday. “I think the next couple of weeks could be lower,” said Mark Newton, head of technical strategy at Fundstrat. He expects the S & P 500 to put in a near-term top this week. “The catalyst could be CPI. I think rates are going to start moving back higher from here. … I don’t think this runs too much further. I don’t think we could get over 4,000. In the next couple of days, I think we could stall out and turn down.” Newton, however, said he also is less convinced the market will put in a new low this year. “I do think we could get to 3,700, and that could give everybody a scare,” he said. “The market probably bottoms out in late January or early February.” He expects it could turn higher and run up in March. “It’s all going to be based on what happens with Treasury yields,” he said. He pointed to the link between higher yields and the pressure on technology and growth shares. The closely watched 10-year yield has been moving lower, trading at 3.52% on Monday. Newton said the market is grappling with the message of lower inflation from the jobs report, and the negative warning for an economic contraction from Friday’s ISM Services report , which was sharply lower. “It’s telling investors two different things. The labor market is still in great shape there’s all these open jobs in general. The job data is robust,” he said. “I’m optimistic for the year.” Stovall said there is a tension between some more hopeful technical outlooks and the gloomy fundamental one. Some of this could shake out as companies report fourth quarter earnings, starting with the major banks Friday. “The market is setting up investors to feel optimistic that maybe we do end up with a soft landing, or even a mild recession. Then the Fed ends up let’s say only raising by 25 basis points in February and then doesn’t do anything else,” Stovall said. “We end up with a milder than expected recession. We end up with a more dovish Fed…What causes this scenario to be wrong is that as the Fed goes into its pause mode, we find they did not extinguish inflation to the level they intended and that it refires and requires the Fed do tightening once again.” Jonathan Krinsky, BTIG chief market technician, said the action is encouraging, but he sees downside. He is watching the 200-day moving average on the S & P 500, which is literally the average of the last 200 closes. That is viewed as a momentum indicator. “The SPX [S & P 500] has spent the majority of the last three weeks between 3,800 and 3,900,” Krinsky wrote in a note. “While a breakout above 3,900 would be encouraging, there is still meaningful resistance in the 3,930-3,950 range, followed by the declining 200 DMA (3,996).We continue to think a break below 3,500 is likely in the coming months.” Cannacord Genuity technical analysts said in a note they are also watching the 200-day moving averages on major indexes. “A new short-term rally phase is taking hold, led by leadership in HFL cycle plays, namely Industrials, Materials, and Financials,” wrote Canaccord Genuity analysts. The “HFL” are “higher for longer” plays that will still do well in a period of high interest rates. “First upside technical target on this rally is near the 200-day moving average on most North American equity indices.” They expect in the intermediate term that a rally could continue into mid-February if there are multiweek closes above 200-day moving averages.