Stocks ended the week on a high note despite hitting a two-year low on Thursday. Despite the gains, the major indexes still saw a second straight week of losses, but one noted technician says he's spotted a key indicator in the market that signals more turmoil ahead.
"When you see the relative performance of utilities, bonds and the S&P 500 index (CME:Index and Options Market: .INX) acting opposite to each other, you're about to get another contraction," Cornerstone Macro technical analyst Carter Worth told CNBC's "Fast Money" traders last week.
Worth took a closer look at the historical correlation between those three factors as well as gold (CEC:Commodities Exchange Centre: @GC.10) and corporate bonds. He explained that the commonality between each divergence and contraction is that they all took place during periods of recession.
"History tells us that when certain asset classes are acting a certain way, specifically right now gold, utilities, Treasury bonds and spreads — and they're happening after great periods of advanced restraint, there's something there," said Worth. "This is not a good setup. It's very hard to reverse it."
By his work that could mean a huge decline for the S&P 500.
"A pretty good reference point is that you fall back to the level of which you broke out. That would simply take us to undo all of the QE, down to about 1,575," said Worth.
Hitting 1,575 on the S&P 500 assumes a nearly 15 percent drop from Friday's closing levels, and a 26 percent decline from its May high.
"It's just a question of when," added Worth.
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