I have been warning now for many months that U.S. markets are in what is called a “rising bearish wedge,” which tends to be the last move in a long bull market (and even more so in a great bubble).

Stocks go up in a last orgasmic, parabolic move in a narrowing channel, or wedge, with little volatility. It looks like stocks have found Nirvana, which is what every human being wants. Everyone gets sucked in…

But then it goes down in flames.

We called the May 2013 top in the junk bond market – to the day – on such a rising bearish wedge. It was also present at many of the great bubbles in our lifetime: The Nikkei in 1989, the Nasdaq in 2000, and gold in 2011. Each one peaked in rising bearish wedges, with predictable exits on the high end… and with higher probability on the break-down not too far off the top.

But there are two patterns in such wedges and junk bonds were an example of the first one.

In Pattern #1, we advance in a rising wedge in a 5-wave up pattern (using Elliott Wave methodology): a-up, b-down, c-up, d-down, and then a final e-wave peak right at or just slightly above the top of the rising wedge.

The infamous 1925-1929 bubble and top occurred this way.

As with junk bonds in 2013, when the market stays within the rising wedge, and when it does test the bottom trend-line, it tends to crash right through because the trend is more obvious to traders who drive the markets.

This was also the case with Australia’s ASX 200 bubble into late 2017, and its eventual burst (speaking of which, I’m looking forward to seeing my Australian readers in a several days!).

In that first chart, note how the Dow was down just more than 40% in the first 2.5 months and down 89% by July 1932 (a little more than 2.8 years)!

How many investors are expecting such a scenario ahead?

Not many.

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And I’m lambasted on financial media every time I go on for making such a call!

But, I said there were TWO types of ends to bubbles. That was just one, and not the one that’s unfolding with this stock bubble in the Nasdaq, Dow, and S&P 500.

Pattern #2 is that we get a “throw-over” rally above the rising wedge, which makes it even more parabolic, and hence, more toppy and bearish.

This is what happened in the Nikkei in 1989, the Nasdaq into 2000, and the Shanghai Composite into late 2007.

The best representation and comparison today is in the Nasdaq bubble that peaked in March 2000.

These bubble crashes all end up down 40%-plus in the first two to three months and down 80% or so two or three years later.

The difference is how they break down.

In this case, the Nasdaq crash of 2000 is more similar to what we’re seeing in markets today.

The parabolic throw-over is the first sign and sell signal because such throw-overs rarely sustain themselves.

The stock market is trying to signal to investors that it has finally “gone to heaven” and there’s no going back… the ultimate swan song. This is why this is the most predictable bearish scenario.

But in Pattern #2, the more bullish tone of the market will cause stocks to test the bottom-trend-line in the wedge strongly first before crashing through it.

In the Nasdaq scenario above, it bounced from the bottom trend-line all the way back to the upper trend-line – but not to the throw-over top. That has never happened in the last century, so I don’t think we’ll see the Dow’s high of 26,600 being exceeded any-time soon, if ever (like the 39,000 Nikkei high in late 1989).

Of course, there’s a twist…

Last week we tested the bottom trend-line of these rising bearish wedges big-time, actually three times… on all three of the major indices (the Dow, S&P 500, and Nasdaq). Yet each time they rallied back.

On the last time on Friday they broke through that line clearly, but briefly. Today, they’re roaring back.

Given how clear the break was on Friday and the rally that has followed into Monday, I suspect that the Fed’s plunge team has stepped in and is buying.

Despite this curve ball, the most likely scenario is that we move up and then mostly sideways for a while… then retest the trend lines… and finally break the critical bottom wedge trend-line in the weeks ahead.

If this market does break to a new high above the one we saw on January 26, then we are in whole new ballgame that gets less predictable.

We can only hope that we test the upper end of the wedge one more time, but that has not happened in history. That would be the ultimate sell signal, as I explained on Stuart Varney on Fox Business. That was at 2,720 on the S&P 500 (just below the top trend-line).

But if the markets break down again this week, it will be the final sell signal before markets could see 16,000 (or lower) on the Dow by mid- to late April. However, the markets must conclusively break that all-important trend-line conclusively to set off the more typical 40% crash in the first three months after a potential top like January 26.

This is the strongest sell signal we have given in a long time. Every new cycle can bring new “curve balls,” but heed this signal. Sell passive investments – like those in your 401Ks – on any new lows in the markets this week, if you didn’t last week.

If we do rise back up to test that top trend-line one more time, then sell at 2,720 or a bit higher on the S&P 500. Don’t look a gift horse in the mouth!

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Harry S. Dent, Jr. received his MBA from Harvard Business School, where he was a Baker Scholar and was elected to the Century Club for leadership excellence. His newest book, ZERO HOUR, Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage released mid-November 2017. Today, he uses the research he developed from years of hands-on business experience to offer readers a positive, easy-to-understand view of the economic future by heading up Dent Research. Harry has written numerous books over the years. In his book The Great Boom Ahead, published in 1992, he stood virtually alone in accurately forecasting the unanticipated boom of the 1990s. That same year he authored two consecutive best sellers: The Roaring 2000s and The Roaring 2000s Investor (Simon and Schuster).