The Fed’s low interest rates could bring a “scary” 50-60 percent market correction, technical analyst Abigail Doolittle told CNBC on Wednesday.
“Unfortunately, I think it could come on a crash similar to what happened in 2007,” the founder of Peak Theories Research said on “Squawk Box” a day after the S&P 500 closed above the 2,000 level for the first time ever. “It’s tough to know what the exact catalyst will be. But that’s the very nature of that kind of selloff. They start slowly and then happen very suddenly.”
Doolittle pointed to a 20-year chart of the Dow Jones Industrial Average. “When we take the long-term chart of the Dow … we see that it’s trading in a multiyear trading range, hitting up on resistance. … What makes this so important [is] you can see that the entire bull market trend over the past five years has started to reverse.”
“When you see that kind of gyration around the trend, typically it suggests you’re going to see some severe volatility,” she said. “As scary as it is, I think that we could see possibly a 50 percent or 60 percent correction—an equal and opposite reaction to all these unusual policy moves.”
Doolittle called Tuesday’s S&P 2,000 close a psychological milestone that means very little technically. “As high as these stocks markets go, I’ve become bearish because the underlying technicals from the long-term really support this view.”