The Federal Reserve could trigger this important sell signal on the stock market

Wall Street bears may be about to return from their September hibernation and devour bull carcases at will if technical inventory strategists are right.

The S & P 500 is getting closer to the often-feared double-decker map after challenging conventional wisdom about this month's US-China trade war and breaking records. The S & P 500 index, located at 3,007 points on Friday, is close to its record of 3,027 shares recorded on July 26.

Technical analysts consider that the formation of a double-top chart is a bearish reversal. It is characterized by two consecutive peaks (in this case July 26 and the one that is now approaching) which are almost identical, with a decent sized hollow in the middle (late July to late August here).

If the S & P 500 convincingly fails its latest momentum beyond the July 26 high, professionals will probably see it as a buying appetite that has made its way in the short term. In the absence of other positive news on the front of the trade war or the prior announcement of corporate profits in the third quarter, investors could have valid reasons to get rid of their shares before the entry into force of new tariffs in mid-October.

Matt Maley, a strategist at Miller Tabak, highlights the important double-top S & P 500 formations in 2000, 2007, 2011 and 2015, followed by significant market corrections.

"Double plateaus are very important in technical analysis … and even if they do not happen often, they are usually very convincing developments," says Maley.

Those seeking the catalyst for a bearish and bearish reversal should turn directly to the Federal Reserve.

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It is generally expected that the Federal Reserve, effective September 18, will lower interest rates by 25 basis points. The statement on the Fed's decision is likely to echo recent sluggish manufacturing data, the slowdown in the US labor market, and the current business risks that are driving the rate cut.

But, according to those on Wall Street, the day's joker will be that of the Fed updated. The dot chart is used to show where Fed leaders are looking at interest rates going forward.

As far as this meeting is concerned, it is not clear if enough Fed members will chart the course of a rate cut. If that happens, the market could perhaps invite investors to come back – remember, market algos like lower interest rate promises, perhaps more than President Donald Trump.

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"We expect the dot chart to show further downward movement, if only to reflect the July rate cut. But the average risk may not change enough to meet market expectations and it is unlikely that the media will announce additional cuts of 50 basis points by the end of the year, "says Ellen Zentner, Morgan economist Stanley.

Goldman Sachs is not convinced either that the Fed's plot will be of the additional dovish variety desired by the markets.

Jan Hatzius, Goldman Sachs' strategist, "We expect the plot to reveal that a substantial minority, about six participants, including the president and vice president, are expecting a third reduction later this year. We believe that such a result would send a strong signal of a third reduction and would not be considered particularly hawkish by investors, even if the midpoint would not show further mitigation. "

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The technical analysis of stocks is not a headache. The study of key graphical formations is an excellent way of measuring market sentiment and determining whether bullish or bearish movements are taking place.

In the latter case, respect the double peak, especially after the rather unfavorable inventory rally observed this month. Stock prices currently reflect growing hope in trade negotiations with China, albeit with little change. Markets also continue to experience a steady reduction in interest rate cuts from the Fed.

This collective optimism could easily be beaten by investors with a tweet from Trump … or a meeting less than the Fed.

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