Tuesday’s big equity sell-off has a lot of market observers very worried about the future of stocks. I’ve heard a lot of chatter in the financial media about the “head-and-shoulders top” chart pattern on the S&P 500. According to StockCharts.com, a head-and-shoulders top pattern forms after an uptrend, and its completion marks a trend reversal. The pattern contains three successive peaks with the middle peak (head) being the highest and the two outside peaks (shoulders) being low and roughly equal. The reaction lows of each peak can be connected to form support, or a neckline.

Take a look at the chart below of the S&P 500 Index, and you can clearly see a classic head-and-shoulders top pattern. The left shoulder formed in January, the head took shape in April, and the right shoulder formed with the most recent high in June.

If this technical reversal pattern proves to be right, then we could see stocks fall very far, very fast. In the chart above of the S&P 500, I’ve drawn a support line at the 1040 level. I think this is a magic level in terms of market support and potential change of direction. If stocks fail to hold above this level, the next area of real technical support is way down around 900.

Now, I am not saying that we are heading all the way toward 900. What I am saying is that if you have big positions in equities right here, you had better have a plan to know when to sell and when to move into the safety of cash.

I am happy to report that subscribers to my Successful Investing advisory service have been safe and sound, and out of harm’s way for some time, thanks to our proven trend-following plan that’s been helping investors beat the market for more than three decades. If you’d like to put the Fabian Plan on your side, then I invite you to check out Successful Investing today.