In last week’s Market Outlook, I warned that stocks could be in for a tough January as long as the market-leading technology sector was weak and the small-cap Russell 2000 remained below its 1,213 March high.

All major U.S. indices closed lower last week, led by the Russell, which lost 1.1%. The tech-heavy Nasdaq 100 was down 0.4%. Moreover, the only sectors of the S&P 500 to post a gain were defensive health care and consumer staples.

#-ad_banner-#Since December, the U.S. stock market has been fraught with what I call “directionless volatility,” indicative of temporary investor indecision that typically becomes the springboard for the next price trend.

Last week alone, the Dow Jones Industrial Average had five consecutive triple-digit daily price moves — two positive and three negative. The last time this kind of near-term choppiness occurred was in late September, which marked the beginning of what turned out to be an 8.6% decline by the Dow into the mid-October lows.

This week’s first two charts directly pertain to this recent sideways activity and will help us determine the market’s next move.

Look for Tech to Lead the Next Market Trend

The first chart shows the Nasdaq 100’s recent transition from a bullish trend, following a successful October test of major support at its 200-day moving average, to the current sideways action that started right after Thanksgiving.

Financial asset prices typically alternate between trending and non-trending periods as investors oscillate between conviction and indecision. The current period of indecision indicates that investors are digesting the most recent advance into the late November highs, which should eventually become the launching point for the next trend.

These indecision periods are usually resolved by a resumption of the previous trend, which in this case, would be signaled by a sustained rise above the 4,347 Nov. 28 high. If we get an upside breakout, it will clear the way for an eventual rise to 4,600, 9% above Friday’s close.

Less frequently, these sideways periods become market tops, which in this case would be signaled by a sustained decline below the lower boundary of the indecision area at 4,089. Should this occur, a potential retest of the October lows at 3,700, 12% below Friday’s close, is likely.

Starbucks Still Percolating — What’s Next?

In the Dec. 8 Market Outlook, I highlighted a breakout in Starbucks (NASDAQ: SBUX) from a full year of sideways action that targeted an eventual rise to $93. The next chart displays the initial Nov. 28 breakout from that extended period of price congestion (blue highlights), as well as a second, smaller period of sideways trading that emerged from the Dec. 8 high (green highlights).

This most recent period of indecision corresponds with the one currently taking place in the Nasdaq 100. A sustained rise above its upper boundary at $83 would be necessary to reengage the initial November bullish breakout and reconfirm the $93 upside target, which would represent a 16.6% gain from last week’s close.

Conversely, a sustained decline below the lower boundary of this second, smaller pattern at $79 would negate the $93 target and indicate that a significant top is in place at SBUX’s recent highs.

As stated above, in most cases, periods of sideways investor indecision that follow a bullish price trend eventually result in the resumption of that positive trend. Within the current market environment, however, which includes elevated volatility, formidable overhead resistance in the semiconductor sector, and a 57-year tendency for seasonal weakness during the next two weeks, I am not nearly as confident that we will have a bullish resolution.

Flight to Safety Drives Yields Lower

In the Dec. 22 Market Outlook, I said the yield of the benchmark 10-year Treasury note appeared to be bottoming at 2.07%, which is its March 2013 closing high. But sharp stock market declines in early December and again in early January have driven investors back to the relative safety of Treasuries, pushing yields lower.

In the intermediate term, my work continues to suggest that long-term U.S. interest rates are in the process of forming an important bottom. Near term, however, last week’s decline below 2.07% clears the way for more weakness and a potential test of the next key level at 1.88%, the September 2012 closing high. This is especially likely if bearish January seasonality in the stock market emerges again this year.

Emerging Bottom in Gold?

In the Dec. 15 Market Outlook, I pointed out that total assets invested in SPDR Gold Shares (NYSE: GLD) were expanding, indicating investors were slowly starting to buy gold again. Almost a month later, the chart shows that the recent buying has resulted in the emergence of a potentially bullish chart pattern — an inverse head-and-shoulders.

A sustained rise above $118.02 this week, which represents the trendline between the Oct. 21 and Dec. 9 highs, would confirm a bottom at the recent lows and target at least a test of the 200-day moving average at $120.86.

Putting It All Together

Contrary to what you may hear in the financial media, the Federal Reserve — not oil — has been the key market driver since December, and the Fed is very concerned about deflation. The past two sharp stock market rallies took place as a direct result of communication from the Fed — on Dec. 17, with the release of the December Fed statement, and on Jan. 7, with comments from Chicago Fed President Charles Evans. Both times the market was rescued from deeper declines.

Although Federal Reserve members are not scheduled to speak this week, two key areas of their focus — the Producer Price Index and Consumer Price Index — are scheduled for release on Thursday and Friday. Considering the Fed’s heightened influence on market direction and its deep concern over deflation, these two numbers could have a big impact on how equity prices resolve their current sideways indecision.

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This article originally appeared on ProfitableTrading.com: What Will Have the Biggest Impact on Stocks This Week? (Hint: It’s Not Oil)