Before you invest, let us investigate.
Don't Shoot the Messenger (It's Just a Chart)

I almost decided not to post this chart (see below) given how outrageous the idea of a stock market drop of this magnitude seems to be. While I do believe we have a steep drop ahead of us (for a myriad of reasons I have posted here, here, and here), I do not personally conceive of a drop as severe as the one contemplated in this chart.

Nevertheless, I do believe the S&P 500 could be forming a triple top (2000, 2007, and 2013?) and believe that the potential of this is well demonstrated in the chart below. Should we fail to materially break out to new highs above the tops of 2000 and 2007, I would expect a fairly dramatic correction to offset the incredible run up in prices we have seen since early 2009.

For that reason, I continue to recommend that investors remain cautious with stocks, keeping tight stops to lock in gains or exiting the market at or near current levels to take profits and downside exposure off the table. Thanks to the Fed, stock valuations were divorced from prices long ago due to the non-sop monetary printing presses. So, if you are a value-investor, look elsewhere. 

S&P 500 Chart depicting the Broadening Top

Disclosure: long AAPL, and about to build a short position in the S&P 500.

Written By: Joshua Ungerecht

Broadening Top, correction, Equities, S&P 500, Stock Market, Stocks, technical analysis