Investors Go On The Defensive, More Weakness Ahead?

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The Dow Jones Industrial Average was the only major U.S. index to post a positive close for the week of March 24, but it was a meager 0.1% gain. Meanwhile, the tech-laden Nasdaq 100 and small-cap Russell 2000, both of which led the 2013 broad market advance, were down by 2.2% and 3.5%, respectively, for the week. Year to date, the broad market S&P 500 is the only major index in positive territory, up just 0.5%.

#-ad_banner-#From a sector standpoint, my own ETF asset flow metric indicates that investor assets most aggressively moved into energy and consumer staples last week, and most aggressively moved out of health care and industrials.

Nasdaq 100 Closing In On Downside Target
In last week's Market Outlook, I pointed out an emerging bearish chart pattern in the market-leading Nasdaq 100 index. The head-and-shoulders indicated that a decline below underlying support at 3,617 would confirm the pattern and target an initial 3.4% decline to 3,530.

The chart shows the index declined below 3,617 support on Monday, March 24, subsequently collapsing by 110 points, or 3%, into Thursday's 3,543 low before finishing the week at 3,571.

Last week's breakdown below the 50-day moving average ( MA ) suggests that a minor bearish trend change is emerging in the index and clears the way for a deeper decline over the next few weeks, first to 3,530 to meet last week's initial downside target, and then potentially to 3,423 to 3,419 to test the Dec. 18 and Feb. 5 benchmark lows. This emerging minor downtrend will remain valid as long as the 50-day MA, currently situated about 1% above at 3,622, loosely contains as overhead resistance.

Investors Moving Back Into Defensive U.S. Treasuries
Last week, I said the U.S. 2-year/10-year yield curve has been situated below its 200-day MA (major trend proxy) since March 13, suggesting an emerging trend toward narrowing or "flattening." I commented, "With the yield of the 2-year note anchored near 0%, a flattening yield curve would also indirectly suggest a decline in the yield of the 10-year note and a coincident rise in long-dated Treasury prices."

The chart of the iShares 20+ Year Treasury Bond (NYSE: TLT ) shows a bullish double-bottom pattern was confirmed by last week's rise above the $108.73 midpoint of the August and December 2013 lows, to the ETF's highest level since July.

As long as the 200-day moving average at $106.07 loosely contains as underlying support, I view this pattern, which targets an eventual, additional 5.3% rise to $115.20, as more evidence of an emerging decline in long-term U.S. interest rates as long-dated Treasury prices rise.

Last week's sharp decline in the Nasdaq 100, which tends to lead the broader market both higher and lower, accompanied by a rise in long-dated U.S. Treasury prices, suggests an emerging shift in investor assets toward more defensive areas. Moreover, with March employment data scheduled for release on Friday, last week's investor apprehension could stretch into this week while the market frets over the new numbers.

This article originally appeared on ProfitableTrading.com:
Market Outlook: Investors Go on the Defensive, More Weakness Ahead?



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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