Every few months, I like to review the price action in isolation. This means I look only at the charts and ignore the news completely.

I start that process with the S&P 500. Below is a chart of the SPDR S&P 500 ETF (NYSE: SPY), a tradable version of the index.

I’ve highlighted a pattern in the chart. From a technical analysis perspective, this looks like a double top. This is a reversal pattern that forms after prices reach two consecutive highs without successfully breaking out. SPY’s failure to make a new high in October potentially changed many investors’ outlook.

Investors who bought near that second top are likely to sell if prices rise back to that level, happy to just break even after suffering through a rapid selloff.

Those investors are also likely to break if prices fall below the lower edge of that pattern. That is about 10% below the second top, which some investors will use as a stop-loss level.

If SPY closes below the lower edge of the pattern at about $320, the downside target is about $285, a downside risk of more than 12%.

Overall, the pattern on SPY is bearish, but it is also obvious. This is a textbook example of a double top and many traders are likely to be watching it form. If it fails, we should expect a strong rally. The upside target, if the pattern fails, is about $390. That’s about 20% above Friday’s close.

What The Big Tech Charts Tell Us

Invesco QQQ Trust (NASADQ: QQQ), an ETF that tracks the tech-heavy NASDAQ 100 Index, is also bearish. The pattern on the chart below could be described a triangle top. This is a pattern that happens when upper and lower trendlines converge as the original trend slows down. The downside target is almost 20% below Friday’s close.

It’s important to consider support in this chart. The dashed line near $265 stalled the advance in July and stopped the initial decline in September. A break of this line would be an important signal to technical traders.

It’s not surprising to see more risk in the tech index. The next chart shows even greater risk in the NYSE FANG+ Index.

This index has significant exposure to the stocks that led the recent rally — Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Netflix (NASDAQ: NFLX), Google’s parent company Alphabet (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT), and Tesla (NASDAQ: TSLA).

This index is also forming a double topping pattern like the ones we saw in the two previous charts. There is also a trendline that serves as a tool for finding the downside risk.

Price targets from patterns are based on the concept that we should expect a breakout to be equal to at least the depth of the pattern. For example, if the difference between the high and low of the pattern is $10, we expect a decline of at least $10 if prices fall through the low of the pattern.

This same concept can be applied to trendlines. In this case, it shows that this index of market leaders shows the potential for a decline of more than 22%.

Conclusions

A loss of this size could be devastating for investors who have significant exposure to the tech stocks. It could lead to more selling as these investors try to preserve capital, and that could lead to even steeper declines.

The charts are all in agreement… a large price move is likely.

To wrap up this analysis, let’s incorporate the fact that there will be news this week — likely a lot of it. Tuesday’s election could be the catalyst for a large move in the market. As noted on the chart of SPY, the obvious patterns could fail, and the move could be up.

We could see a trend develop as soon as the results of the election are known. By the time you’re reading this, we may already know those results — or we may not. But whenever we do, we should be ready to trade based on how the market reacts to the news.

For conservative investors, this means taking action to preserve capital if selling continues after the election. If the market rallies, it will be time to turn bullish.

Hopefully, we will know more by the end of the week… Assuming, of course, the election is decided by then.

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