Market trends behave like Newton’s First Law— they maintain their direction and momentum until external economic forces intervene. Often, before reversing course, indices or stocks make a few final pushes in the same direction, forming reversal patterns. It has become increasingly evident that the major U.S. equity indices have finalized their topping patterns of the latest bull market. The time has come to assess the damage and outline probabilities for their future trajectory.

1) The S&P 500 has broken below a Bearish flag

The S&P 500 reached its all-time high on February 19, hitting an intraday peak of 6147.43, surpassing the prior high of 6128.18 set on January 24. On the daily chart, the index formed a double top pattern, with an intermediate low of 5923.93 recorded on February 3. By early March, the index had broken below the intermediate level, reaching the 161.8% extension target by mid-month before attempting a bounce. However, the rebound was weak and doomed to fail, hampered by the vagaries of the current geopolitical and economic winds blowing in from Washington, DC.

The feeble bounce attempt, which faltered at the resistance level marked by the January 13 low, led to the formation of an upsloping flag—another bearish pattern. On Friday, the index broke below this pattern as well. The first measured target, the 61.8% Fibonacci level around 5390.00, aligns with a support at 5402.62. The second measured target, the 100% extension at approximately 5150.00, lies within the spitting distance of another support level at 5119.26. The 161.8% extension target—near 4750.00—is below the December 2023 high of 4780.98. These levels represent declines of -12.3%, -16.3%, and -22.8% from the all-time high, respectively.

Bottom Line: The S&P 500’s path of least resistance is downward. The once-popular kid, ‘buy-the-dips’ (BTD), has been dethroned by its fresher, cooler counterpart, ‘sell-the-rips’ (STR). There is a strong likelihood that the index will reach the second measured target, approximately 5150.00, which also coincides with the 38.2% Fibonacci retracement of the rally from the October 2022 lows.

2) The NASDAQ Composite Turbocharged and Following Suit

The NASDAQ Composite hit its all-time high on December 16, 2024, reaching a peak of 20240.58. In January and February, the tech-heavy index made two runups to break above this level, but both efforts fell short.

In late February, NASDAQ broke below a key support level—the January 13 low. By the seventh trading day of March, it reached the 61.8% measured target of the double top pattern. The bounce faltered much below the 200-day SMA but still completed the bearish upsloping flag. On Friday, March 28, the index broke below this pattern as well. The first measured target, the 61.8% level around 16500.00, is approximately 150 points below a support level at 16668.57. The second target, the 100% extension near 15400.00, lies below another support level at 15708.53. The third target, the 161.8% extension near 13650.00, is positioned above a support level established in November 2023. These levels represent declines of -18.3%, -23.7%, and -32.5% from the all-time high, respectively.

Bottom Line: There is a strong likelihood that the index will reach the first measured target, near 16500.00, which also coincides with the 38.2% Fibonacci retracement of the rally from the October 2022 lows.

3) The Dow Theory Agrees—We Are Going Down.

The Dow Theory posits that the two averages—industrials and transportation—move in tandem, confirming each other’s trends. Since 2021, however, we have observed a slight deviation with both making new all-time highs simultaneously. In November 2021, the transports peaked at 18246.51 and the industrials at 36565.73. While the industrials reached another high in January 2022, the transports did not follow. Both averages subsequently declined until October 2022, before embarking on a fresh bull run. The industrials achieved several all-time highs, culminating in their last peak of 45073.63 on December 4, 2024. Their attempt to breach that level in 2025 stalled slightly lower at 45054.36 on January 31, a week after the S&P 500’s January high. On the day of the S&P 500’s all-time high, the industrials were more than 1.0% below their high.

Transports, on the other hand, have not surpassed their high of 2021. Their first attempt, rising from the September 2022 lows, stopped in July 2023 at 16717.04. The second attempt petered out on November 21, 2024, at 17845.72. During the rally from October 2022, the two averages confirmed each other’s highs until December 2024. Since then, neither of them has made new highs. Instead, they have been making lower lows.

The Dow Industrial Average is currently at the lower bound of a double top pattern. It previously broke below the intermediate low and is now attempting to do so once again. The measured down targets of this pattern are as follows: the 61.8% extension is approximately 39850, the 100% extension is around 38600, and the 161.8% extension target is near 36620. These levels correspond to declines of -11.6%, -14.3%, and -18.8% from the all-time high, respectively.

Bottom Line: The Dow Theory has signaled that we are in a downtrend. This will persist until both averages stop making lower highs and lower lows and start making higher highs and higher lows.