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One recurring theme within what has otherwise been a lackluster 2015 thus far for the U.S. stock market is its ability to quickly recover from the brink of a corrective decline. We saw this phenomenon again last week as all major indices finished in the black. They were led by the tech-heavy Nasdaq 100, which edged below key underlying support levels a week earlier.

On the sector front, last week’s advance was led by energy, which gained 3.1% and continues to look like an emerging investment opportunity over the next one to two quarters. Bringing up the rear was financials, which gained just 0.1%.

Transportation Stocks Recovering?

In last week’s Market Outlook, I pointed out that the Dow Jones Transportation Average was edging below its 200-day moving average, a widely watched major trend proxy. I said this warned of an emerging major bearish trend change in this influential index, which would be confirmed by a sustained rise in the Volatility S&P 500 Index (VIX).

The transports made a strong bullish recovery last week, moving back above their 200-day moving average, now at 8,676, to completely recoup the losses of a week earlier. Last week’s broader market rally was corroborated by a decline in the VIX, indicating a fearless marketplace that typically helps to fuel advances. 

Last week’s rebound indicates that, at least for the time being, this U.S. economic barometer has averted a deeper and more sustained decline. Moreover, last week’s rebound may trigger even more buying this week as investors attempt to “buy the dip” following a successful test of a major support level.

Technology Continues to Point Higher

The next chart shows that the Nasdaq 100 has coincidentally rebounded from a test of its October 2014 uptrend line, which I discussed in the March 30 Market Outlook, and is now trading back above its 4,347 late-November high. In that report, I said this trendline represented an important decision point for the index from which its October advance must aggressively resume to keep my 4,600 target intact.

That target, which is situated 4% above Friday’s close, remains intact this week above the 4,347 area.

Market Looks Vulnerable This Summer

Despite the market’s resiliency so far this year, there are some headwinds to be aware of as we near the summer months. One is a well-known seasonal trend of weakness between May and September — of “sell in May and go away” fame — which I most recently discussed in the March 2 Market Outlook.

Another headwind is investor sentiment, which has reached a bullish extreme according to metrics like the Investor’s Intelligence sentiment survey, which is displayed at the bottom of the next chart.

The chart shows that this weekly survey of intermediate- to-long-term oriented stock market newsletter writers is at an historic bullish extreme. This is a contrary indicator, and such extremes have previously coincided with or closely led every important peak in the S&P 500 since 2007. 

This metric stopped “working” as an indication of intermediate-term market peaks just about the time that the third round of quantitative easing was launched in September 2013. With QE3 officially over as of October 2014, we can expect that this metric will soon return to its acumen at identifying emerging intermediate-term tops, perhaps this summer.

Energy Heating Up

Since the end of January, and periodically since then, I have been pointing out that my own metric, which is based on ETF asset flows, has been showing a slow but steady flow of sector bet-related investor assets back into the energy sector.

As a direct result of the improvement in these flows, the Energy Select Sector SPDR ETF (NYSE: XLE) has outperformed the SPDR S&P 500 ETF (NYSE: SPY) by 5.6 percentage points in the past month. Moreover, the table below shows that through the end of last week, the biggest positive percentage change in these assets over the past one-week, one-month and three-month periods have been into energy.

The inflow of investor dollars is what fuels a rise in the price of an asset. This data suggests that recent relative sector outperformance by energy is likely to continue during the second quarter, and also indirectly suggests that positively correlated West Texas Intermediate (WTI) oil prices may start to move higher from the pivotal $50-per-barrel area, which is currently being negotiated.

So far, 2015 has been characterized by a mostly sideways U.S. stock market that has consistently been able to pull itself out of the fire just when it looked like a very overdue corrective decline was beginning. We saw the latest instance of this last week, which kept bullish chart patterns and their upside targets in both the Nasdaq 100 and small-cap Russell 2000 (most recently displayed in the March 23 Market Outlook) intact heading into this week.

One reason for this resiliency is because quantitative easing has trained investors that you either buy a 4%-6% pullback in the market when you get one or kick yourself later for not doing so. However, now that QE is officially over and this implied put by the Federal Reserve is no longer providing a safety net for investors, one day soon prices are going to just keep declining. 

A long-term trend of seasonal weakness during the summer months coupled with historically “too bullish” investor sentiment warn that this overdue correction may finally emerge this summer. For the near term, though, the bulls still have control of this market as long as the underlying support levels discussed in this report continue to hold.

This article was originally published on ProfitableTrading.com: Market Pulled Back From The Brink, But For How Long?​