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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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.

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