This quick chart study of the Nasdaq in October of 2007 to March of 2008 reminds me of what to look for in a topping pattern and to be aware of for today’s market. Volume trends are crucial when observing a transition between supply and demand and to identify major trend changes.
Notice the weak rally on light volume before the break of the 50 day moving average on very good volume. Then there were two attempts to break through the 50 which failed. I highlighted my short point which was confirmed with increasing downside volume. The subprime issue started in January of 2008 but was not an issue until a year later when the credit markets dried up.
Fast forward a few months and the Nasdaq went sub 1400. Technical analysis certainly gives us clues on the past and strong warnings for the present.