All major U.S. indices declined last week. This followed a strong showing the week before, as the market continued its year-long trend of lurching back and forth while remaining essentially unchanged.  

Last week’s decline was led by the Nasdaq 100, which could prove problematic this week because of the market-leading index’s position just above a key support level that I have been discussing here for some time.

Another potential problem is the economically sensitive Dow Jones Transportation Average, which as I mentioned in last week’s report, continues to negotiate major support at its 200-day moving average, now at 8,689, and may be failing there.

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While industrials and consumer discretionary led the broader market lower last week, energy was the only sector of the S&P 500 to finish in positive territory, gaining 2.2%. In the previous report, I said that energy “continues to look like an emerging investment opportunity over the next one to two quarters.” Last week’s strong showing within an otherwise weak market suggests the move I’ve been anticipating is getting under way.

Technology: Time to Sink or Swim

Beginning in the Feb. 17 Market Outlook, I have been discussing the mid-February breakout higher in the Nasdaq 100 from three months of sideways investor indecision.

Although this breakout technically continues to target an eventual rise to 4,600, the chart below shows that the index has since posted three lower lows — on March 2, March 20 and April 13 — trying to get there. This is not a good sign for the index going forward, or for the broader market that it typically leads.

A sustained breakdown this week below 4,347, which represents the top of the November sideways investor indecision area, and the index’s Oct. 15 uptrend line, would negate the bullish implications of the pattern and suggest that a near-term peak is in place at the recent highs.

Volatility Key to Market’s Direction This Week

One reason that every attempt at a stock market decline since February has failed is that investors have not been collectively fearful enough to facilitate one. 

The next chart shows that the Volatility S&P 500 Index (VIX) has managed to remain below its 50-day moving average since Feb. 5, indicating a level of investor complacency that has historically coincided with a rising stock market.

Moreover, the green highlights show that the past three times the VIX has tested its 50-day moving average from below, which is precisely where it began this week, have coincided with the past three near-term bottoms in the S&P 500. Therefore, this volatility metric corroborates the directional implications of the first chart by again indicating that the stock market must either be strong out of the gate this week or it will be vulnerable to a deeper pullback, and perhaps the beginning of an overdue correction.

Energy Showing Upside Potential

Since the end of January, my own metric has been showing a steadily increasing flow of sector bet-related assets into energy. Three months later, these positive asset flows are starting to trigger bullish minor trend changes in energy-related asset prices.

Since its Jan. 13 low, the United States Brent Oil ETF (NYSE: BNO) is up 29%. It recently rose above its 50-day moving average, a widely watched minor trend proxy, while breaking higher from three months of sideways investor indecision. This indicates a near-term bottom is in place at the recent lows.

The breakout targets a move to $25.50, which is 9.8% above Friday’s close. This objective remains valid as long as the apex of the investor indecision area at $20.50 holds as underlying support. 

The market-leading Nasdaq 100 begins this week in a precarious position, right on top of key support at 4,347 and at a time when the U.S. stock market seasonally peaks for the summer. Stocks must be strong out of the gate this week to keep their October bullish trend intact.  

Conversely, a decline below 4,347 on the Nasdaq 100, accompanied by a move above 14.78 in the VIX, would indicate that long overdue correction is beginning. Such a decline would likely drive investor assets back into the relative safety of U.S. Treasuries and push the yield of the 10-year note back toward 1.66%.  

Elsewhere, I am seeing some early signs of strength scattered across various commodity markets like crude oil, gold, copper and platinum. With the stock market vulnerable to a summer correction and limited upside in Treasury prices with the Federal Reserve expected to raise interest rates later this year, commodities may offer investors value and better upside potential over the next one to two quarters.

Editor’s note: The commodities space has already supplied some readers with big profits this year. Subscribers to Jared Levy’s Profit Amplifier booked a 90.5% profit on Valero Energy (NYSE: VLO) call options in just two weeks. That works out to an annualized return of 2,201.6%. If you are not familiar with Jared’s service, we’ve put together a short fact sheet you can read here.

This article was originally published on ProfitableTrading.com: Commodities Offer Better Potential Than Stocks​