All major U.S. stock indices finished in the red again last week, led lower by the small-cap Russell 2000 and tech-heavy Nasdaq 100. The decline pushed the Dow Jones Industrial Average into negative territory for the year where it joins the Russell 2000, which has been residing there for some time.

#-ad_banner-#​On Sept. 15, the title of the Market Outlook was “Correction May be Getting Under Way — Protect Your Profits.” The bellwether S&P 500 peaked four days later, on Sept. 19, and has since declined by 113 points, or 5.6%, through the end of last week.

The collapse below major support levels at 1,080 in the Russell and 8,215 in the Dow Jones Transportation Average, both highlighted in last week’s Market Outlook, in addition to continued weakness in European markets, warn that an even deeper U.S. market decline may be emerging.

Investors May Buy the Dip in the Diamonds

In the Sept. 22 Market Outlook, I pointed out that daily assets invested in the SPDR Dow Jones Industrial Average ETF (NYSE: DIA), nicknamed the “Diamonds,” were contracting even as it was setting new all-time highs. Without an expansion in assets, I said the rally was likely to fail.

And fail it did, as DIA actually peaked on Sept. 19, the session before that report was written. It subsequently fell 4.7% into Friday’s $165.21 close.

Friday’s collapse positions DIA just below major support at $165.69 to $165.51. The first is the 200-day moving average, a widely watched major trend proxy, and the second is the Dec. 31 high. This is precisely where the 2012 major uptrend should aggressively resume if it is still healthy and valid. This support level should at least attract some buying pressure over the next week or two, considering how quantitative easing has trained investors to “buy the dip.”

Extremes in VIX May Incite Temporary Rebound

In last week’s report, I said, “A still elevated CBOE Volatility Index (VIX) indicates an apprehensive market that is vulnerable to more near-term weakness.” That weakness was pretty apparent last week. However, the next chart shows that — as odd as it sounds — the market may now be spooked enough to trigger at least a temporary recovery.

The sell-off last week frightened investors enough to push the VIX above 21.35 to a two-year high. This level coincided with near-term bottoms in the S&P 500 in June and October 2013, and in February of this year.

The subsequent market bounces represent the sigh of relief that investors collectively feel when they believe the worst is over. And major support levels being tested, like the one in DIA shown above, may help to facilitate that. However, the bigger and more important question is, can a bounce from this major support be sustained?

Things Still Look Dicey Across the Pond

Back in the Aug. 25 Market Outlook, I called attention to an emerging major bearish trend change in iShares MSCI Germany (NYSE: EWG). I said, “I think Germany is more accurately reflecting upcoming economic and/or geopolitical risk in Europe that will eventually have an adverse effect on the U.S. market.”

Not only has that “adverse effect” taken place here in the States since then, but there is now evidence that things could get much worse before they get better.

My next chart plots Germany’s DAX index weekly since 2012, along with its 52-week moving average, and highlights a bearish head-and-shoulders formation. The pattern, which indicates the change from a bullish to a bearish trend, targets an additional 11% decline to 7,800 that will remain valid as long as the DAX’s 8,913 March 14 low loosely contains on the upside as overhead resistance.

Considering the 25-year positive correlation between the DAX and the S&P 500, this chart indirectly suggests that — minor rebounds aside — both the German and U.S. stock markets are vulnerable to a much deeper decline between now and year end.

Making the Case for Base Metals

In last week’s Market Outlook, I highlighted the recent pullback in PowerShares DB Base Metals ETF (NYSE: DBB) to major support at its 200-day moving average, while amid favorable investor sentiment data for a rise in copper prices. I said I was cautiously bullish as long as DBB stayed above its Oct. 2 low at $16.60.

So far, the ETF is responding nicely, finishing last week at $16.99 after trading as high as $17.17 a day earlier.

Especially considering the stock market’s potential vulnerability to more fourth-quarter weakness, I continue to view DBB as a potential — and currently lower-risk — alternative investment idea.

Putting It All Together

Last week’s market collapse positioned several major indices, including the Diamonds, at major underlying support levels. Meanwhile, market volatility according to the VIX has spiked to two-year extremes that have previously coincided with minor market bottoms.

These factors collectively suggest the likelihood of at least a near-term rebound over the next week or two, as investors come in to buy the dip just as quantitative easing has trained them to do since 2013. The more important question is, can a rebound from this support hold and become the springboard to new highs in 2015?

Weakness in Germany suggests that the answer is no, which makes me particularly interested in alternative investment ideas like the one that currently exists in DBB.

This article originally appeared on ProfitableTrading.com: Spooked Traders May Trigger a Bounce, but Will It Last?​