Louise Yamada has a strong message for investors: Don't get complacent.
The markets have been in rally mode since the start of the fourth quarter, with the S&P 500 and Dow Jones industrial average each surging more than 5 percent. Both indices are trading at levels not seen since late August. But according to Yamada, any strength should be used as an opportunity to sell.
"You always get a rally after a big decline," the renowned technician told CNBC's "Futures Now " on Thursday. "The point is that we initiated a downtrend in August and once a downtrend is initiated after something that looks like a larger top, these rallies tend to go back into resistance." Yamada identified the next levels of resistance as the falling 200-day moving average, which comes in at around 2,050 to 2,060.
In early September the Louise Yamada Technical Research Advisors founder said that a shift in momentum was a "classic" sell signal and suggested that a bear market may be upon us, as she sees strong "technical evidence" that a longer-term top has been forming over the past year.
"What we are seeing now is leadership in a lot of depressed stocks," said Yamada. Energy, which has been the worst-performing sector on the year, has suddenly emerged as a winner this quarter. The sector is up nearly 13 percent since Oct. 1 and is the best performer in the S&P 500 during that period. "While we're rallying we're seeing deterioration in some of the [former] leaders," she added. "One would suggest those rallies are not sustainable."
For Yamada, it's only a matter of time before the S&P 500 hits the next level of resistance, and investors should be prepared for what could be the start of sharp selling. "A lot of these rallies tend to bring us to a place of complacency before the bear claw may come out again to strike," she warned. "We are skeptical of this rally."