Stocks are primed to drop 25 percent before the year is out: ‘Northman Trader'

Stocks could be set for a big slide to finish off the year, according to Sven Henrich, better known as the "Northman Trader."

According to Henrich's work, the S&P 500 is trading in a "rising wedge pattern" — in which the market's narrowing range points toward a dramatic move.


"Wedges are very powerful patterns, and when they break, they have a fairly sizable implication," Henrich said Monday on CNBC's "Trading Nation." "The rising wedge demands a resolution in the coming months."

For Henrich, this pattern is likely to resolve to the downside. He points to a series of divergences, including the spread between insider buying and the S&P 500.


In another sign of instability, Henrich points to the FTSE All-World Index's inability to hit a fresh record high.


How could this play out? Given the rising wedge pattern and based on the market's high valuation from historical norms, the chart-minded trader predicts that "we can see a 20 to 25 percent correction into 2017."

"That's actually not a historically outrageous correction," added Henrich, who runs a subscription service and is not a professional money manager. "We just haven't seen it in such a long time that no one's used to it any longer."

So far this year, the S&P 500 is up about 5 percent, but is slipping in Tuesday morning trading.


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