There app ears to be a pretty solid chart pattern similarity between the 2007 sp500 market top and the current 2010 market structure. The 2007 top was a slow grinding top and almost seemed like it happened in slow motion.
The current 2010 price action seems to have the same flavor with slow trickle up price action on generally weak volumes. It is this slow and meandering price action that seems to lull a lot of people into complacency and forget that this market still has the potential to turn on a dime and transition into fast and furious downward price action.
But actually it would be incorrect to call the price action after the final high in 2007 as ‘fast and furious’. It was still labored price action that marked the early stages of a much longer term decline.
As pointed out in the chart above you can see that right after the 2B sell signal was issued in October 2007, price declined to the 50 day moving average and then found support not only on the 50dma but also the neckline of the previous head and shoulders bottoming formation.
The present time frame in 2010 shows a very similar price structure and the potential for a 2B sell signal perhaps as soon as this week. Assuming a 2B sell signal is issued, then it would also be reasonable to assume that the first major stopping point for price would once again be near the 50 day moving average and also near the supporting neckline of the head and shoulders bottom formation.
If the market is able to trade to new 52 week highs this week and into the end of the week then it will probably invalidate this whole price pattern similarity.
Ideally, this pattern similarity would evolve best if the market trades slightly higher early this week, even making new intra day highs, but then by mid week or end of week rolls over into an end of week sell off.