All major U.S. stock indices finished in positive territory for the third consecutive week, but just barely, led by the broad market S&P 500, which gained just 0.7%. All are also in the black for 2014, led by the technology-heavy Nasdaq 100, but the small-cap Russell 2000 has trailed the pack all year and is currently up just 0.8%.

#-ad_banner-#The defensive consumer staples and utilities sectors led last week, which is uncharacteristic of a healthy and sustainable broad market advance. Moreover, my own ETF-based metric shows that the biggest inflow of sector bet-related investor assets over the past one-week, one-month and three-month periods were into consumer staples. This establishes favorable conditions for its trend of relative outperformance versus the S&P 500, which began in August, to potentially extend through year end.

The longer defensive sectors lead the market higher, the more likely the current advance will be short lived. However, for the time being, things look good as all major indices except for the Russell 2000 set fresh 2014 highs last week.

Nasdaq 100 Hits 14-Year High

Since the Aug. 25 Market Outlook, I have pointed to important overhead resistance at 4,147 as a major obstacle that must be overcome to clear the way for more strength this year in the Nasdaq 100 itself and the broader market that it typically leads.

The index gapped above 4,147, the September 2000 benchmark high, on Oct. 31, and it closed above that key level in each of the five trading sessions since.

Price gaps indicate near-term investor urgency; in this case, urgency to buy technology stocks. This particular type of gap is known as a breakaway gap because prices are breaking away from the cluster of price activity below 4,147, which had contained the index on the upside since September. This type of gap is typically not “filled.” So the Nasdaq 100 should not decline back to the 4,109 Oct. 30 high for the near-term bullish implications to remain intact.

Investor Complacency Supports More Stock Gains

In last week’s report, I pointed out that the CBOE Volatility Index (VIX) declined below its 50-day moving average at 15.37 on Oct. 31 for the first time since mid-September. I said I expected the rally to continue as long as it remained below this moving average.

The VIX did remain below its 50-day, now at 15.61, all week while the S&P 500 extended its mid-October advance.

The VIX is a widely used measure of market risk and is often referred to as the “fear gauge.” My work shows that when the VIX is below its 50-day moving average, indicating that fear is trending below its near-term norm, investors are collectively complacent enough to support a near-term rise in stock prices.

As long as the VIX remains below 15.61 this week, the breakaway gap in the Nasdaq 100 is unlikely to be filled and stocks should continue higher.

Interest Rates Imply Strengthening Economy

In the Oct. 20 Market Outlook, I said, “My work now suggests the decline in long-term U.S. interest rates is near completion.”

The yield on the 10-year note actually bottomed on Oct. 15, closing at 2.15% and rising to a high of 2.39% last week.

The 2.4% March 2012 benchmark high, which was an obstacle to lower yields back in late August, now becomes resistance as yields rise from the 2.15% bottom.

Although yields may linger near 2.4% for a week or two as the market renegotiates this area, I expect this level to eventually be exceeded, followed by a test of the next key level at the 200-day moving average, currently situated at 2.56%.

I view the recent rise in yields as being indirectly positive for the stock market because it implies that the forward-looking bond market believes the U.S. economy is strong enough to expand without further stimulus from the Federal Reserve.

Oil Prices Bottoming?

After peaking near $108 per barrel at the end of June, West Texas Intermediate (WTI) crude oil prices collapsed 30%, falling to a low under $76 per barrel last week. Meanwhile, in just four months, the financial media has swung 180 degrees from optimism that lower oil prices would buoy consumer spending to fear that the lack of global demand could be a precursor to a recession.

The next chart plots the annual seasonal trend in crude oil prices since 1977. Historically, November is the weakest month of the year. After January, we kick off a period of slowly increasing seasonal strength that culminates in April, the strongest month of the year, as the weather gets nicer and people travel more.

The simple message of this chart is that, while it may be a bit too early to buy crude oil and energy-related assets, this is a good time to start watching for emerging opportunities in this highly discounted sector.

Putting It All Together

Fresh 2014 highs in most major indices amid declining market volatility and rising long-term U.S. interest rates establish a favorable environment for stocks to potentially continue rising into year end.

The only area of concern is that the market is currently being led higher by defensive sectors like consumer staples and utilities. If this continues, it could be signaling some upcoming problems.

Finally, keep a close eye on crude oil and energy-related asset prices over the next several weeks as 37 years of seasonality data suggest the potential for a good buying opportunity to emerge before prices start rising into next year’s summer driving season.

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This article originally appeared on ProfitableTrading.com: The One Cautionary Sign In An Otherwise Bullish Market