All major U.S. stock indices closed lower for the second consecutive week, led by the broad market S&P 500, which lost 1.6%. 

#-ad_banner-#Despite the recent decline, all major indices remain in positive territory for 2015, led by the tech-heavy Nasdaq 100, which is up 3.9%. As long as technology and small-cap issues continue to outperform the broader market, as has been the case thus far this year, I view the recent weakness as a temporary countertrend correction rather than a sustainable decline.

Ironically, Friday’s market collapse was triggered by perhaps the best economic news so far this year. The U.S. economy added 295,000 jobs in February as the unemployment rate declined to 5.5%. On an annual basis, this is the best period of job gains in nearly 15 years. 

But a quantitative easing-inspired mindset had traders thinking that good economic news is bad news for U.S. stocks because it will encourage the Federal Reserve to raise interest rates sooner rather than later this year. 

I view this as a temporary reaction that should eventually provide a better intermediate-term buying opportunity. At the end of the day, rising interest rates mean the Federal Reserve is as certain as it can be that the U.S. economy is strengthening — and that is good for equity prices. 

Moreover, the yield of the benchmark 10-year Treasury note, which closed at 2.24% on Friday, is almost 250 basis points below its average monthly close of 4.70% since 1900.

Regardless of whether the Federal Reserve raises interest rates in June or October, long-term rates are still very low historically and extremely conducive to continued economic growth. 

Dow Theory Led the Market Sell-off 
In the previous Market Outlook, I pointed out that a new all-time high established during February in the Dow Jones Industrial Average was not corroborated by a corresponding new high in the Dow Jones Transportation Average. According to Dow Theory, I said, “As long as the transports do not establish a new closing high above 9,217, the sustainability of the broader market’s recent strength will be suspect.” 

Last week’s Dow Theory-led decline also turned intermediate-term market momentum in the S&P 500 negative, as the Moving Average Convergence/Divergence (MACD) indicator turned lower from a one-year bullish extreme.

This downward reversal in the MACD, which plots the difference between 12-day and 26-day exponential moving averages, warns of the broader market’s vulnerability to a deeper decline this month, just as it did in similar instances over the past year. The next chart, however, an updated version of one that appeared in the Feb. 17 Market Outlook, suggests that the stock market’s overall directional bias is still positive. 

Tech Stocks Continue to Point Higher 
The chart of the Nasdaq 100 shows that despite last week’s sharp decline, this market-leading index remains above the 4,347 upper boundary of the 10-week sideways congestion period from which it broke out of on Feb. 13.

As long as the 4,347 area loosely contains the index as underlying support, my 4,600 upside target, which is 4.6% above Friday’s close, remains valid. 

Moreover, the Nasdaq 100’s current position above both its 50-day and 200-day moving averages indicates that its minor and major trends are still bullish. 

Watch Volatility for a Clue to Future Market Action 
One key way to determine whether last week’s decline will continue — and, if so, how far — is by watching market volatility, which can be done via the Volatility S&P 500 (VIX), also known as the fear gauge. 

The next chart shows that the early November to early December rise in the S&P 500 was facilitated by an extreme in investor complacency, with the VIX below its 50-day moving average. A similarly low VIX has most recently been in place since mid-February.

This means that despite last week’s market collapse, which was outwardly pretty scary, investors were not collectively frightened enough to push the VIX back above its 50-day moving average, currently situated at 16.98. 

As long as the VIX remains below 16.98 this week, favorable conditions exist for this pullback to end quickly and for the larger 2015 advance to resume. Conversely, a sustained rise above that level would warn of a deeper decline. 

Putting It All Together 
Last week’s U.S. stock market decline, which I initially warned of a week ago based on a Dow Theory non-confirmation, is threatening to extend further into March due to a bearish shift in the S&P 500’s intermediate-term price momentum. 

How much deeper is likely to be directly influenced by market volatility. A sustained rise above 17 in the VIX this week would indicate investors are collectively fearful enough to drive equity prices lower in the near term. 

Bigger picture and corrections aside, the recent break higher from months of sideways investor indecision in the market-leading Nasdaq 100 continues to target at least 4.6% upside to 4,600 as long as the 4,347 area loosely contains as underlying support

This article originally appeared on PofitableTrading.com: More Market Weakness Coming? Here’s the Chart to Watch​