Friday’s session in the U.S. stock market ended with yet more losses and led the major indices to close very fragile for the week. The S&P 500 was down 3.9%, the Nasdaq 100 was off 2.7%, and the Russell 2000 was down 3.8%.

The major immediate focus for investors remains on the U.S. debt ceiling debate, which as of this writing Sunday afternoon, has not yet concluded. Yet if institutional investors were so afraid of a U.S. default then why did Treasurys rally so much last week?

Yields of 10- and 30-year Treasury securities closed on Friday at the lowest levels for this year so far. Clearly investors are not expecting the government to default on the $9.34 trillion of outstanding debt.

Just look at two-year daily chart of the 30-year U.S. Treasury bond futures and note how, on Friday, it broke out of a narrowing trading wedge marked by the blue lines. On a slightly different yet very related note, Standard & Poor’s placed the U.S. AAA rating on “CreditWatch” July 14, and warned there’s a 50% chance that the rating would be lowered within 90 days regardless of an agreement on the U.S. debt ceiling. Given the magnitude of this potential downgrade and the multitude of downgrades in Europe already, the unintended consequences could well be that the rating agencies lose credibility. Last week’s selling in stocks at least partially started pricing in a downgrade of the nation’s debt. It’s just something to keep in mind as we paddle in these turbulent seas.

Last week’s risk-off trade became more vicious as the week progressed and it became clear that the debt ceiling debate will potentially run right to the last minute of the deadline on Aug. 2. The S&P 500 has now traded lower than I would have liked to see, and as such, the likelihood of the index bouncing towards the 1,370 area has now dramatically diminished. Should a relief rally occur on the back of a debt ceiling resolution, I would see it lose steam again around 1,320-1,340, followed by taking out the 200-day simple moving average (red line).

On the daily chart of the S&P 500 we see that the index has closed below the 61.8% Fibonacci retracement level of the late June/early July rally and again bounced right off the rising 200 day simple moving average.

The index now also sits right at the lower trendline of the up-sloping channel in place since early 2009. If and when the index closes below that trendline on a weekly basis, then we would have great confirmation of lower highs and lower lows, signaling further downside toward 1,200.

While the technology sector still has a chance to pick itself up and attack this year’s highs in the near term, numerous key sectors and other groups of stocks are either already failing or very close to failing at important support levels.

Juniper Networks (NYSE:JNPR) dragged down network equipment stocks last week after closing the week off 23% on the back of weak earnings and a lowered outlook. That group of stocks is often closely watched for IT spending by corporate America, and if stocks like JNPR suffer, it sends weak signals for the economic outlook.

The most prominently weak chart on my screens however remains the industrial sector. The Industrial Select Sector SPDR (NYSE:XLI) last week closed below $35 (as well as below the 200-day simple moving average), which had until then acted as support in 2011.

To put this in a little better perspective, please see this chart here of one of the most prominent industrial stocks; General Electric (NYSE:GE). The stock is holding on for dear life at important support around the $18 mark.

All in all, stocks have come off more than I anticipated in the near term, and as such, any relief rally would now be hard pressed to make it up to 1,370 on the S&P 500 over coming weeks. I anticipate lower prices again after such a potential relief rally followed by another rally toward year-end. More importantly, however, the current uncertainty doesn’t bode well for loading up on tons of long positions in stocks, but rather should reward patience and observing.

• See Sam Collins’ Daily Market Outlook: Go Against the Crowd of Sellers
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• See Serge Berger’s Trade of the Day: Regal Entertainment Stock Could Be a Hit

Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.