Rampant dealmaking calls top for S&P: Technician

It's been a banner year for mergers and acquisitions. In 2015, M&A volume and activity has set a record on both a worldwide and U.S. basis, according to Dealogic. But while that may sound like good news, it is actually an indicator that the market may be topping, according to one technical analyst.

"There are two things that companies tend to do towards the end of market cycles: Buy back their stock aggressively, and buy other companies aggressively," said Jonathan Krinsky, chief market technician at MKM Partners, in a Monday "Trading Nation" segment.

And indeed, "we've seen stock buybacks really pick up in the last couple years, and we've seen M&A activity pick up."

To illustrate his point, Krinsky furnishes a chart comparing a 20-week moving average of U.S. M&A transaction value with the S&P 500.

The M&A moving average "actually just exceeded its 2007 highs, which we know is essentially the peak of that cycle in M&A activity, and also the peak in the stock market," he said. "It's tough to say, just because we exceeded that level, that the market is at a peak. But it's interesting to note that [other indicators] are getting a bit frothy."

"You have to start to wonder, 'Is this the end of the cycle?'" Krinsky said. "We think the answer is probably 'Yes.'"

Read MoreWe may have just seen the peak in M&A: Traders

Yet for Erin Gibbs, equity chief investment officer of S&P Investment Advisory Services, M&A activity is likely to abate somewhat but continue to be strong overall, based on the high level of cash on mega-cap companies' balance sheets.

This comports with her overall view of stocks right now. "We're expecting a muted but positive next year," she said in the same "Trading Nation" segment.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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