Carter Braxton Worth, a technical analyst at research firm Cornerstone Macro, recently sent a note to clients pointing out a so-called “symmetrical triangle,” which you can see in the chart below.
Typically, technical analysts would see the above pattern as bullish, but Worth sees the exact opposite. “We believe the current formation is a setup for a move lower,” he said.
“It is a circumstance where buyers and sellers are matched off so evenly that purchases being made by those who like a particular security are in the same order of magnitude as the selling being done by those who dislike the security,” noted Worth. Such conditions are typically followed by a sharp move to one side or the other.
Yesterday’s big market drop actually broke through the triangular chart pattern, as you can see below, which may well evolve into a much larger breakdown:
While stocks could also bounce back into a new bull market, Worth feels a crash is much more likely. And investors are likely to find out soon. “Time will tell,” Worth writes, “and not a whole lot more time, we suspect.”
The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) was mostly flat in premarket trading Wednesday at $181.20 per share. Year-to-date, the only exchange traded fund that tracks the Dow Jones has risen 4.14%.