The stock market is on the verge of flashing a sell signal that could lead to a swift 7% decline, Fairlead's Katie Stockton says

There is a chance that the stock market will fall another 7% from Friday's close.

The S&P 500 fell 4% over the last week after it ran into resistance at its moving average. The S&P 500 is likely to gravitate towards its 50-day moving average.

According to a Monday note to clients, the market has suffered a significant loss of momentum that is likely to yield a MACD sell signal today for the SPX.

Technical analysts use the Moving Average Convergence Divergence indicator to show the relationship between two moving averages of a security's price. The signal line can be used as a buy and sell signal. The trend is captured with the help of the MACD. She likes the indicator because it's black and white and can either be bought or sold.

If these indications unfold at today's close, we would see that as an incentive to reduce counter-trend exposure to U.S. equities.

The fact that Wall Street's volatility index has room to the upside before hitting resistance adds to the belief that the stock market could decline quickly. When the stock market falls, the stock market's inverse correlation with the VIX increases.

The CBO gapped up after holding up. A greater increase in volatility appears likely with no resistance until 35. The S&P 500 fell 2% on Monday as the CBOE index spiked.

It is seen as an important level that determines if systematic investment strategies will turn more risk-on towards equity markets. The current period of heightened volatility is likely to last even after the VIX falls below 20.