Major benchmark indexes are taking a beating as investors remain concerned about the world’s economy, sending the NASDAQ and the S&P 500 into a downward spiral. The S&P 500 has had the worst start of the year in eight years, note analysts at Bank of America Merrill Lynch, who also said the NASDAQ indices are on track for double tops and losing their leadership position.

S&P 500 plunges in one of history’s worst performances

Technical Research Analyst Stephen Suttmeier said in a report dated Feb. 8 that his case for a “‘sell into strength’ tactical rally” hasn’t gotten very much strength. He notes that the S&P 500 has tumbled 8% year to date through this month’s first five trading days. Not only is this the worst start to a year for the index since 2008, but it’s also the second worst start going all the way back to 1928.

In 2008, the S&P 500 tumbled 8.95% from the start of the year through the first five trading days of February. However, on average, the index gains 1.16% over this same time frame each year. The analyst warns that the S&P 500 also has bearish signals for the November to January and January barometers, which is a risk for this year.

No sellable rally yet

Suttmeier also said that the index just hasn’t had much strength to sell in support of his “sell into strength” case, adding that a number of short-term indicators are starting to shift away from supporting a technical rally thesis. He called the five- and ten-day put/ call ratios “complacent.”

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He also highlighted that oversold buy signals like the VXV/VIX ratio, Williams %R, and the NYSE McClellan and Slow Stochastic Oscillators are rolling over.

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nasdaq

The BAML analyst reminded investors that last week, he wrote about using the “rising channel from January 20 as a guide for a ‘tactical’ and ‘sellable’ rally.” He noted that on Friday, the channel registered 1884, which was slightly ahead of the S&P 500‘s close of 1880 on the same day. He also said that the channel rises by about six points a session, meaning that the index’s failure to close higher than 1890.21 yesterday upped the risk for the channel to see a “decisive break” and also possibly “1872 chart support.”

He said his VIGOR long-term volume model and his top U.S. most active “A-D- line” slumped last week to reach new lows, reflecting that the U.S. stock market is experiencing distribution.

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nasdaq

“This suggests S&P 500 risk below 1812 with the rising 200-week moving average at 1787 and the 38.2% retracement of the October 2011 to May 2015 rally at 1730,” he wrote. “We still are not ruling out a cyclical correction within the larger secular bull market with risk toward 1600-1575.”

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Trouble for the NASDAQ

Suttmeier also reports that both the NASDAQ 100 and the NASDAQ Composite are starting to lose their leadership positions and now run the risk of hitting double tops. Further, the NASDAQ stocks he refers to as the “Generals” are weakening as the small- to mid-cap stocks in the index (which he calls “Troops”) are abandoning them. He added that weakness in the Generals is a bearish indicator for the whole stock market, as is weakness in the NASDAQ Composite because the 30 stocks with the heaviest weightings in the NASDAQ make up more than half of the 2,601-stock index.

All graphs in this article are courtesy BAML.