The major U.S. stock indices gave back the previous week's gains and then some last week, due in part to tepid March new home sales and weaker-than-expected Q1 GDP. They were led lower by the tech-heavy Nasdaq 100, which lost 3% and ended April down 5.5% for the year.
Meanwhile, the benchmark S&P 500 has already fallen 2.2% since peaking on April 20, about a week after my Market Outlook entitled "In The Week Ahead: Start Protecting Your Portfolio Now" discussed the likelihood of a bearish reversal.
From a sector standpoint, last week's market decline was led by technology (-3%) and health care (-2.9%). Energy and defensive utilities and consumer staples were the only sectors to finish the week in positive territory.
In last week's Market Outlook , I pointed out that energy saw the biggest positive percentage change in sector bet-related investor assets over the past one-week and three-month periods, according to Asbury Research's own ETF asset flows-based metric. Not surprisingly, crude oil prices have also been showing some strength lately, which I will talk about in more detail later in the report.
Nasdaq 100 Meets Initial Downside Target
Last week, I pointed out a bearish "island top" chart pattern in the Nasdaq 100, saying it suggested a near-term peak was in place at the index's recent highs and targeted a decline back to the 4,302 to 4,232 support zone.
That support was tested on Friday, as the Nasdaq 100 hit an intraday low of 4,307, a 3.7% decline in just five sessions, before closing the week off 3% at 4,341.
Apple At Key Inflection Point
I also pointed out last week that Apple's (Nasdaq: AAPL ) inability to rise above major overhead resistance near $111 was a potential canary in the coal mine that warned of upcoming weakness in the tech sector.
AAPL collapsed 12.5% last week to test major underlying support at $92, which represents its August and February lows, before closing the week down 11.3%.
Investor Fear Could Trigger Deeper Decline
I have been warning that investors are especially susceptible to a scare according to the Volatility S&P 500 (VIX), which has been hovering near historic lows around 12 for the past several weeks, indicating extreme investor complacency. A sustained rise above the VIX's 50-day moving average would be necessary to indicate investors had become fearful enough to fuel a market decline.
The VIX finished last week at 15.70, just below its 50-day moving average at 15.80.
Potential Bottom in Oil Prices Offers Reason for Hope
In the April 18 Market Outlook , I postured that the inability of major oil-producing countries to reach an agreement on freezing crude oil output could result in oil prices resuming their August 2014 downtrend from major overhead resistance near $44. However, West Texas Intermediate ( WTI ) crude continued to climb, breaking resistance by closing at $45.96 per barrel on Friday.
Asset prices often bottom when they no longer decline on negative economic/fundamental news, and this could be what is happening right now in the oil market.
Rising oil prices could eventually help the stock market find a tradeable bottom, as well, because WTI crude has been positively correlated to the S&P 500 since October 2015.
Putting It All Together
The stock market correction I have been expecting since the March 28 Market Outlook , entitled "Time to Put a Defensive Plan in Place," appears to be under way. The losses may accelerate this week if we see a decline below $92 in tech bellwether Apple and/or a sustained rise above 15.80 in the VIX.
Bigger picture, however, a sustained rise above $44 in WTI crude oil prices would indirectly suggest the recent decline in U.S. equities could provide investors with an even better buying opportunity later this year, if not later this quarter.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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