All major U.S. indices finished more than 2% lower last week, led by the Russell 2000, an index of small-cap stocks, which was down 3.6%.

Moreover, last week’s decline pushed the S&P 500 into negative territory for the year, joining the Russell 2000, Dow Jones Industrial Average and tech-heavy Nasdaq 100, which were already showing losses for 2014.

From a sector standpoint, last week’s broad market collapse was led by financials and health care, which were both down 4%. The utilities sector was the only sector that finished in positive territory for the week, up just 0.6%. My own metric indicates that investors moved assets most aggressively into defensive consumer staples and utilities last week, and out of financials and industrials.  

Dow, Nasdaq 100 Testing Minor Support Levels
In last week’s Market Outlook, I pointed out a bearish key reversal day that emerged on April 4 in the Dow industrials. I said it indicated a near-term peak was in place at that day’s high and cleared the way for an additional 1.7% decline to 16,134. The Dow hit my target last week and continued to decline into Friday’s 16,027 close.

The chart shows that last week’s collapse positioned the index right above its November 2012 uptrend line, at 16,014, heading into this week.

This support represents an important near-term decision point for the Dow, and a place that I would expect at least some near-term dip buying to emerge as investors have been rewarded many times over the past year for buying sharp declines into support levels like this one.

However, be careful of a sustained breakdown below this support, as it would clear the way for an additional 2% decline into the next support level at 15,747 to 15,710, which represents the September 2013 benchmark high and the 200-day moving average, a widely watched major trend proxy.

Our next chart shows that the Nasdaq 100 has declined more than 200 points, or 6%, since we first discussed an emerging bearish chart pattern in the market-leading index in the March 24 Market Outlook. This market-leading index, which finished last week at 3,447, is also quickly closing in on an important band of underlying support at 3,419 to 3,372, which represents its Feb. 5 benchmark low and 200-day moving average. 

Market Outlook readers who initiated bearish positions in the Nasdaq 100 per our March 24 report may now want to consider covering them at or near this support zone in anticipation of a potential bounce higher from support.

Gold Rebounding From Major Support — 2014 Advance Resuming?
In the March 31 Market Outlook, I pointed out that the SPDR Gold Shares (NYSE: GLD) had declined into major underlying support at its 200-day moving average. I said that how the ETF (exchange-traded fund) reacts to this important band of support over the next few weeks will go a long way in helping to determine whether its mid-March decline was just a correction in an emerging bull market or the resumption of gold’s larger 2013 decline.  

The chart below shows GLD actually established a near-term bottom the day after the report, on April 1, and has since rebounded 3% into Friday’s close.

Moreover, the green highlights show that GLD is now rising from monthly oversold extremes (lower panel) that were first reached at the end of March, just as it did from the lows back in mid-December. This combination of near-term oversold conditions and major support at the 200-day moving average, currently situated at $125.22, sets up an ideal environment for GLD’s next leg higher to begin if gold prices are indeed in the midst of an emerging major bull market. This is potentially a low-risk place for gold bulls to consider getting back into the market.

Bigger picture, however, a continuation of the April rebound in defensive gold prices would warn that last week’s collapse in U.S. stocks could stretch deeper into the second quarter.

This article was originally published at ProfitableTrading.com:
Market Likely to Bounce, but a Gold Rally Could Spell Trouble

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