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Dow 16,000 is coming soon: Louise Yamada

Wall Street bears are roaring.

The Dow, S&P 500 and Nasdaq Composite have each fallen more than 5 percent to near correction territory this week as a tumultuous global selloff kicked off 2016. The Dow and S&P have now seen their worst start to a trading year in history, and one widely followed technician warns investors should prepare themselves for significant downside ahead.

"If this is going to be a bull market that continues overtime, then I think you could pull back to the breakout that occurred in 2013, which could take us toward 14,000 for the Dow and toward 1,600 on the S&P 500," Louise Yamada told CNBC's "Futures Now" on Thursday. "That would calculate to about 23 percent [from the high] which is a normal cyclical bear market."

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A move to those levels would account to a more-than-17 percent drop from the S&P 500's current level of around 1,945 and nearly 16 percent move lower than the Dow's current level of around 16,573.

Of course, Yamada doesn't expect this to happen in a straight line down. The heavy selling in the last few sessions has her thinking a near-term bounce is in the offing. However, she did stress that there have been warning signs on the charts for the last several months.

"There's a distribution pattern [on the chart] that's been in place for a year and a half, and we've had monthly momentum sell signals in place in the last year," said the Louise Yamada Technical Advisors founder. A distribution pattern refers to heavy volatility, where an asset will experience big movements with no distinct direction. "We're also seeing a death cross on the monthly chart, which is where the 10-month moving average moves below the 20, that's happening for the first time since 2008."


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Yamada expects the Dow to retest 16,000 in the next month, and the S&P 500 to fall as low as 1,900. If these levels are breached, she said that is when "we are looking at something more significant."

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