The major U.S. stock indices finished last week fractionally lower despite very strong housing data, as anxiety over a potential debt default in Greece this week undoubtedly triggered some defensive liquidation heading into the weekend. Despite the day-to-day volatility that has kept investors on edge for months, the S&P 500 is only up 2.1% for the year.

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The week’s strongest and weakest sectors were both influenced by the recent rise in long-term U.S. interest rates.

Financials put in the best showing, as increasing rates and a widening yield curve both make banks more profitable. Moreover, Asbury Research’s own ETF-based metric shows that, on a percentage basis, the biggest inflow of sector bet-related investor assets over the past one-month and three-month periods again went into financials. This trend has fueled the sector’s outperformance.

Utilities were the weakest sector, as rising yields in risk-free Treasuries continued to lure yield-seeking investor assets away from utility stocks.

Stocks’ Pinball Game Poised To Continue This Week 
In the June 15 Market Outlook, I pointed out that the bellwether S&P 500 was testing minor support at 2,072 amid near-term oversold conditions. I said this level should become the springboard for the next potential leg higher. 

Following that report, the index rose 1.7% to the June 22 high. The chart below shows this rebound resulted in near-term overbought conditions as the index tested the upper boundary of its recent trading range at 2,135. The past four instances of this have coincided with minor declines.

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This decline could potentially push the S&P 500 back down to the lower end of its trading range at 2,072. If that level is broken, it would clear the way for a deeper decline to the 200-day moving average at 2,053.

Weakening Cisco Is Another Red Flag
Beginning in the Nov. 17 Market Outlook, and most recently in the Feb. 23 issue, I discussed a bullish chart pattern in tech bellwether Cisco Systems (NASDAQ: CSCO) that targeted an eventual rise to $32 per share. Since my initial call, CSCO has gained 7.5% through Friday’s close compared with just 3% for the S&P 500. However, my work now suggests that an important peak may be in place at the March high.

The chart shows what appears to be an emerging breakdown from four months of sideways investor indecision. If this weakness continues, it targets a decline to $25.

CSCO is a particularly important stock to watch because of its positive correlation to the market-leading Nasdaq 100. In other words, as goes CSCO, so is likely to go the overall stock market.

The Missing Ingredient For A Gold Rally
In last week’s report, I pointed out that SPDR Gold Trust (NYSE: GLD) was testing major overhead resistance at its 200-day moving average. I said an aggressive bet by smart money commercial hedgers, according to the latest data from the Commodity Futures Trading Commission (CFTC), pointed to a sustained rise above this major trend proxy. What is currently missing, however, is day-to-day bullish investor conviction in higher prices.

One way to measure this conviction is via the total net assets invested in GLD, which are plotted since December in the lower panel of the next chart. The green highlights show the latest period of monthly expansion in these assets fueled a sharp rise in GLD between Dec. 22 and Jan. 22. However, these assets have been steadily contracting ever since, which is why every subsequent attempt at a rally has failed.

A sustained rise in total net assets above their 21-day moving average, which would indicate a monthly trend of expansion, is necessary to show there is enough bullish conviction to fuel and sustain a bullish trend change — and a new buying opportunity — in GLD. Until then, it is still too early to buy gold.

Putting It All Together
The benchmark S&P 500’s bearish reversal from resistance at 2,135 at the end of last week, especially considering formidable overhead resistance just above the market in both the Nasdaq Composite and Japanese Nikkei 255 (see last week’s report), warn of the U.S. stock market’s vulnerability to more downside follow-through this week. Moreover, an emerging breakdown in tech bellwether Cisco Systems warns that a significant market peak may already be in place at the recent highs.

A breakdown below 2,072 in the S&P 500 this week would help confirm that a long overdue broader market correction is under way. Market Outlook readers are advised to keep protective stops tight and have a defensive plan in place.

Editor’s note: Profitable Trading’s Jared Levy will soon be releasing a free report on why the likelihood of a market correction — or worse — is so high. More importantly, he will be telling you how you can safely make huge profits in a down market. He recently closed trades that delivered annualized returns of 141.1%, 220.9% and 508.6% on falling stocks — all without shorting. If you’d like to learn how, follow this link.

This article was originally published on ProfitableTrading.com: Market Bellwethers Warn A Correction May Be Around The Corner