All major U.S. stock indexes closed higher for the week of March 17, led by the broad market S&P 500 (+1.4%) and Dow industrials (+1.5%). For the year, only the small-cap Russell 2000 (2.6%) and tech-laden Nasdaq 100 (1.7%) are positive.

#-ad_banner-#Global stock markets were led lower by Russia and China. In the March 17 Market Outlook, I said I was expecting an additional decline of about 2% to 21,000 in China’s Hang Seng Index. Last week, the Hang Seng declined as expected, hitting a low of 21,137, and appears headed for a test of major support at 20,800.

Heading into this week, the major European stock indexes are all situated just above major underlying support at their 200-day moving averages. This is where their larger cyclical uptrends should aggressively resume from, if still valid.

Nasdaq 100: A Leading Indication of What To Expect This Week
In my March 10 report, I said that momentum in the S&P 500 was still positive, but getting a bit frothy, indicating that the market was probably going to have increased difficulty continuing higher without a correction first. The U.S. broad market index is virtually unchanged since then.

Last week, I pointed out that the Dow Jones Industrial Average had not corroborated the new 2014 closing high in the Dow Jones Transportation Average. This bearish warning signal according to Dow Theory remains intact heading into this week.

This week, our focus is on what may be an emerging bearish chart pattern in the market-leading Nasdaq 100. The head-and-shoulders pattern may represent an upcoming bearish change in the minor trend that would be confirmed this week by a close below key underlying support at 3,620 to 3,617, which represents the neckline of the pattern drawn between the March 3 and March 14 lows, and the 50-day moving average (minor trend proxy).  

A close below this support area would confirm the pattern and target an initial 3.4% decline to 3,530 that would remain valid below Friday’s high of 3,717. Also noteworthy is Friday’s bearish outside range day, i.e., a higher high, a lower low, and lower close than the previous day, which portends further weakness early this week.

March Seasonality Kicking In for Gold Prices
In the Feb. 18 Market Outlook, I pointed out an emerging major bullish trend change in gold prices. Gold subsequently rose by more than $70 per ounce, or 5.7%, into the $1,393 March 16 high. More recently, in the March 10 report, I pointed out a 37-year trend of weakening gold prices during March. And in last week’s report, I said, “This may be a good time for gold investors to consider locking in some near-term profits as an appreciable and sustained move above $1,434 seems unlikely without at least a minor corrective decline first.

Gold prices collapsed by $72 to $1,311, or 5.2%, last week. The next chart shows one potential reason for the drop.

The chart displays the daily closing price in COMEX gold since 2011 in the upper panel, with a daily survey of individual futures traders’ bullishness on gold prices plotted in the lower panel. When trend-following traders collectively get too bullish, bad things happen.  

The red highlights show when near-term-oriented traders’ bullishness peaked, most recently on March 14, near an historic bullish extreme of 81% that had previously coincided with every important peak in gold prices in recent history. They are now moving to a less bullish condition. This investor sentiment metric warns of price vulnerability and potentially more near-term weakness into April.

However, also remember the emerging major bullish trend change in gold prices I pointed out on Feb. 18. As long as this major trend remains intact, last week’s price decline will be expected to eventually provide a better buying opportunity.

This article originally appeared on ProfitableTrading.com:
Market Outlook: Watch for Confirmation of Bearish Chart Pattern This Week