Chris Vermeulen: S&P Crash Is Coming And Here Is Why

From the lows of 2009, the SPX has risen in a parallel channel while never breaking/closing below it with the exception of the beginning of this year at which time it broke down the channel and then closed below it.

There is a lower high formation during all of the pullbacks, after the corrections, as can be viewed in the chart below.

Whenever a long trending channel is broken, it weakens and the odds of a breakdown increases. The next move is the break of the channel which will change the uptrend into a downtrend.

The pattern breakdown becomes confirmed below the 1810 levels. The break will form a pattern target of 1490 on the SPX. The targets usually overshoot in a bearish market, therefore,1490 is merely a ballpark figure that the markets can go much lower while falling.

Along with breakdown of the channel, the SPX is also making a long-term bearish rounding pattern as indicated, in the chart below.

The short-term pattern shows a classic textbook example of a bearish head and shoulder pattern as depicted in the next chart below.

The pattern will be confirmed when the SPX breaks and closes below the neckline at 2040.

Below the 2040 level, the next support level comes in at the psychological 2000 level. Most traders who have been buying the dips will buy close to this level, and I expect to see a bounce.

The professional traders will use any bounce off these levels to short the market, to take advantage of it's long awaited downtrend.

The bearish head and shoulder pattern target, on the lower end is located at the 1970 levels. However, these targets are only a rough levels for reference. The markets can easily overshoot these levels.

As explained above, the 2000 level is a psychological support area and 1970 is the pattern target. However, upon studying the charts, I can see that 1950 levels, which had earlier acted as a resistance, will now offer support.
If the markets break below the 1950 levels, then there is no support until it drops to the lows of 1810. Once the SPX breaks below the 1810 levels, it will enter into its multi-year bearish trend decline. The markets do not honor any support levels once it enters a confirmed bearish trend. Hence, although 1490 is the target, markets can go much lower as long as the bearish trend continues.