Of course, Yamada doesn’t expect this to happen in a straight line down. The heavy selling in the last few sessions has her thinking a near-term bounce is in the offing. However, she did stress that there have been warning signs on the charts for the last several months.
“There’s a distribution pattern [on the chart] that’s been in place for a year and a half, and we’ve had monthly momentum sell signals in place in the last year,” said the Louise Yamada Technical Advisors founder. A distribution pattern refers to heavy volatility, where an asset will experience big movements with no distinct direction. “We’re also seeing a death cross on the monthly chart, which is where the 10-month moving average moves below the 20, that’s happening for the first time since 2008.”
Yamada expects the Dow to retest 16,000 in the next month, and the S&P 500 to fall as low as 1,900. If these levels are breached, she said that is when “we are looking at something more significant.”