HSBC WARNS: The stock market 'is putting in a bigger top than eight years ago'

One major analyst note sent out early on Monday is calling the top in US stocks - with a potentially colossal slump to follow.

Murray Gunn, the head of technical analysis at HSBC Bank, is out with the call, which says the Dow has put it a massive "head and shoulders" top.

Here's Gunn:

A Head and Shoulders top pattern occurs when, after an uptrend, the market makes a higher high than the previous reaction high, then a lower high and finally falls through the "neckline" connecting the two reaction lows.

Based, on this, Gunn says the Dow Jones index "could have put in an historic top, one that may well turn out to be more significant than the top in 2007."

He adds that "as long as 18,137 holds as resistance the structure suggests that a new long-term and potentially powerful bear market has started; one that should end below the 2009 low" (emphasis ours).

Here's that on a chart:

At 16,384, the Dow Jones is currently more than 1,000 points lower than it was at the start of the year.

With the coming Federal Reserve rate hike and the recent turmoil in emerging market stocks, investors are already on edge.

If Gunn's analysis was to come true, what's happened so far would be just a minuscule dip in comparison.

Gunn sees signs of a tumble in the S&P 500 too:

Here's Gunn again:

We have been highlighting this divergence between our Sector Rotation Index and the stock market since 2013. As the stock market has rallied since 2011, defensive sectors have been outperforming cyclical sectors on aggregate which is a sign of a fake bull market. With the breakdown in the stock market it now looks like the reversion process is underway.

That's a pretty colossal reversion.

If the S&P 500 were to return to its previous relationship with the USA sector rotation index, that would wipe out half of its value.