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This stock chart may scare investors, but don't panic yet

Brian Sozzi

The bears will feast on this one.

With President Donald Trump’s full blown trade war on China injecting a ton of uncertainty back into stock markets, one key benchmark has formed an often bearish chart pattern.

The S&P 500’s record closing high of 2,945.83 hit on April 30, 2019 barely took out the prior peak on September 21, 2018 of 2,929.67. Since then, the market has sold off in large part due to fears of the global impact to big companies such as Caterpillar from a prolonged U.S.-China trade war.

In the process of this pullback, the S&P 500 (^GSPC) has formed what appears to be the dreaded double-top formation (see chart below).

A double-top stock formation is usually viewed as a bearish reversal pattern. It's characterized as two consecutive peaks that are nearly identical, with a noticeable trough in the middle.

Fear the S&P 500 double top?

The trough in this latest instance, of course, is the sell-off in the stock market that took place in the fall due to worries about rising interest rates from the Federal Reserve. As for the peaks, they are the closing highs on September 21, 2018 and April 30, 2019.

“There is the potential for a double top. Any time a price gets back to a prior reference point or high there is that temptation to bring out that it’s a double top — it’s the end,” Evercore ISI chief technical analyst Rich Ross said Tuesday on Yahoo Finance’s The First Trade.

While it looks as if stocks have further to fall here — in essence validating the double-top’s predictive powers — Ross said investors shouldn’t panic.

“Just because prices reached a prior point on the S&P 500 of 2,940 and pulled back doesn’t necessarily connote we have a more sinister double top in play here. My call is this is not a double top and you will see new highs in the S&P 500, so we aren’t staring at the end of this structural bull market.”

Brian Sozzi is an editor-at-large and co-host of Yahoo Finance The First Trade. Follow Brian Sozzi him on Twitter @BrianSozzi

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