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Scary head and shoulders formation could be a warning sign for Nasdaq

Traders work on the floor of the New York Stock Exchange.
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There's a nervousness in the market as corporate earnings season begins, but traders watching the negative technical formation building in the Nasdaq may be feeling even queasier. 

A potential head and shoulders pattern is forming in the Nasdaq Composite – which could be signaling a reversal. With Monday's sell off, the downside of the second shoulder was being drawn and the futures were forwarning of more declines Tuesday.

"If the pattern follows, it will go down and test the starting point on the first shoulder," said Justin Walters, co-founder of Bespoke. "There's no real guidance into how much it will be fall."