Despite Friday’s strong rebound, fueled by much better-than-expected September employment data, all major U.S. stock indices finished in the red last week. Once again, the decline was led by the small-cap Russell 2000, which lost 1.3% for the week and is now down 5.1% year to date. The other major indices are still positive for 2014.

#-ad_banner-#Last week’s decline was led by the energy sector, which fell 4.1%. Not surprisingly, my own ETF asset flow-based metric shows that the biggest sector-related outflows over the past one-week, one-month, and three-month periods came from energy. Meanwhile, the biggest inflows over the past one-week and one-month periods were into health care, which has outperformed the S&P 500 by 4 percentage points since August.

Investors Remain Nervous

The tech-heavy Nasdaq 100 broke down below key underlying support at 4,000, which I discussed in the Sept. 29 Market Outlook, amid a still elevated CBOE Volatility Index (VIX) that indicates an apprehensive market that is vulnerable to more near-term weakness.

The VIX has been above its 50-day moving average since Sept. 22. The previous two times this occurred coincided with the declines in the S&P 500 between mid-July and mid-August and during early April.

As long as the VIX remains above its 50-day moving average this week, which is currently situated at 13.65, it suggests that the market is vulnerable to more near-term weakness despite the strong rebound at the end of last week.

Small Caps, Transports Showing Signs of Life

In the May 19 Market Outlook, I pointed out that the small-cap Russell 2000 was testing major underlying support at 1,083 to 1,079. I said: “As long as the Russell remains above it this week, I would view this level as a potential springboard for a new leg higher in the overall market.”

That support level did indeed hold, and the S&P 500 rose 6.1% by July 24.

The Russell 2000 once again tested, held and rebounded from 1,083-1,079 at the end of last week. This level is important because it defines the lower boundary of a big area of sideways congestion, indicating investor indecision, which has been in existence since the beginning of the year. As long as this support level holds, the Russell is amid favorable technical conditions for another minor rebound — perhaps back to the 200-day moving average at 1,151.

The next chart shows that, while the Russell 2000 was testing and rebounding from major support near 1,080, the Dow Jones Transportation Average was testing and rebounding from support at its 2012 major uptrend line.

The key support levels in these two indices must hold this week, while the VIX declines and remains below 13.65, to suggest that the stock market will once again avert an “official correction” of 10% or greater and is resuming its larger 2014 advance.

Conversely, a breakdown through either of these support levels while the VIX remains above 13.65 would indicate that a deeper pullback/correction is emerging — one that could potentially extend through the end of October.

Time for Another Look at Base Metals

In the July 7 Market Outlook, I pointed out that the PowerShares DB Base Metals ETF (NYSE: DBB) had emerged from a year of sideways price activity that indicated a positive intermediate-term trend change. DBB rose 4.6% to its July 25 high, and in the Aug. 4 report, I suggested readers consider taking some near-term profits on long positions and waiting for a pullback to potentially provide a better buying opportunity.

DBB ended last week 8% off its Sept. 8 high and testing major underlying support at its 200-day moving average, a widely watched major trend proxy, situated at $16.66. This looks like the pullback I was waiting for.

Over the past several weeks, I have noticed extreme bearish sentiment in a number of different commodities. These include crude oil, which was shown in last week’s Market Outlook, and copper.

As a contrary indicator, bearish extremes in investor sentiment typically precede significant bottoms. DBB seems to be responding positively with new buying pressure, and as long as it stays above Thursday’s low at $16.60, I am cautiously bullish. I will be watching it closely for what looks to be an emerging buying opportunity.

Putting It All Together

The U.S. stock market made a nice recovery at the end of last week, triggered by unexpectedly strong September employment data just as some key indices — namely the Russell 2000 and Dow transports — were testing major support levels.

However, an elevated VIX indicates that the market is still apprehensive. If last week’s rebound was indeed the beginning of a new leg higher within the 2014 advance, then we should see some strong upside follow through in the broad market this week as the VIX declines back below 13.65 and stays there.

Conversely, a continuation of the recent elevation in the VIX and a breakdown below 1,080 in the Russell 2000 and/or below 8,215 in the Dow transports would indicate that a deeper correction is under way, one that could potentially extend through October.

This article originally appeared on ProfitableTrading.com: Is an ‘Official Correction’ in the Cards? The 2 Most Important Charts to Watch​