The stock market closed modestly higher last week for its fifth consecutive weekly gain, once again led by the defensive Dow Jones Industrial Average, up 2.3%.

Although any positive weekly close is good, it’s important to note that the tech-heavy Nasdaq nand small-cap Russell 2000 showed the smallest gains and are the only major U.S. indices still in negative territory for 2016.

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Since these indices typically lead in a healthy and sustainable market advance, I will continue to view the broader market rally with some skepticism until they start doing so.

Every sector of the S&P 500 finished in positive territory last week except for health care, which lost 2.6%. 

In the March 7 Market Outlook, I pointed out that the biggest sector-related outflows over the previous one-week and one-month periods, according to Asbury Research’s proprietary metric, came from health care. This fueled the sector’s recent relative underperformance.

As the table below shows, investors have continued to pull assets from health care for better perceived opportunities in other sectors. For instance, energy received the biggest inflows in the past one-week and one-month periods.  

Health care has been the weakest sector of the S&P 500 year to date, declining 7.2%. As long as investor assets continue to leave the sector, that weakness is likely to continue.

Dow Hits Upside Target

On Thursday, the Dow industrials hit the 17,500 target I identified in the Feb. 29 Market Outlook. The blue-chip index closed the week at 17,602, advancing more than 5% in three weeks.

Now that our target has been met, the next question is: How much more upside is there to this rally?

Know Your Levels Before The Market Gets There

Two weeks ago, I said a sustained rise above key resistance at the S&P 500’s 200-day moving average, then at 2,023, would clear the way for more near-term strength and a potential test of the next overhead resistance level at 2,104 to 2116. 

After hovering just below the 200-day, now at 2,018, for almost two weeks, the index decisively broke through it last week.

This breakout clears the way for a test of minor overhead resistance at 2,082, the Dec. 29 high. If that level is broken, the next level to test would be the 2,104 to 2,116 area. Conversely, a sustained collapse back below the 200-day would suggest the market has changed its mind and traders should brace for another decline.

Complacency Fuels Rising Stock Prices

A determining factor of just how much higher the rally can go is the level of investor fear. One way to measure this is with the Volatility S&P 500 (VIX), which determines the market’s expectation of 30-day volatility via the implied volatility of a wide range of S&P 500 index options.  

Since Feb. 19, the VIX has been below its 50-day moving average, which I use as a baseline for determining whether investors are collectively fearful or complacent.

History shows that as long as the VIX remains below its moving average, currently situated at 21.50, the S&P 500’s advance is likely to continue. It would take a sustained rise above the VIX’s 50-day moving average, like we saw between early December and mid-February, to indicate investors are fearful enough to facilitate a stock market decline.

US Interest Rates Are Another Key Influence

In last week’s report, I pointed out that 10-year Treasury note’s yield was testing important overhead resistance at 2%. I noted it was an important inflection point for long-term U.S. interest rates from which a move to 2.15% or a decline back to 1.85% is likely. 

These yields tested 2% on March 11, closing at 1.98%, and then declined to finish last week at 1.88%. 

The relationship between stocks and bonds, which move inversely to yields, has fallen out of sync since January. But prior to that, the yield of the 10-year note had generally moved up and down with the S&P 500 since July 2015 as investors shifted their assets back and forth between Treasuries and equities.

If 10-year yields fall below 1.85% and down toward the next key level at 1.68%, I will consider it an indirect warning of weakness in the stock market.

Putting It All Together 

Recent investor complacency sets the stage for more near-term strength in stocks and perhaps a test of the next overhead resistance level at 2,082 in the S&P 500, which is 1.6% above Friday’s close.  

Bigger picture, however, declining long-term interest rates would indicate that the forward-looking bond market is getting nervous. If the yield of the 10-year Treasury note remains below 2%, it could be a precursor to another stock market decline in the second quarter. 

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This article originally appeared on Profitable Trading: How High Can the Rally Go? 2 Clues to Look For