The following charts represent a study I have been analyzing the last few days which concerns the topping pattern seen in mid-2007 before the financial crisis, and the chart pattern that has been observed in the last few months in the S&P 500. Granted the charts do not line up perfectly, it is obvious that the chart of the last few months is happening at a faster, more compressed rate than that of the price action in 2007. Nonetheless similarities are abound even MACD, stochastic, and rsi indicators are all lining up with eerie resonance. In addition to the technical side of the pattern, I think too we can examine what’s going on globally and concur that the problems facing the European Union right now are similar in potential systemic affect as those that caused the financial crisis. Quite simply when Lehman collapsed it created a domino effect in the credit and derivative markets. With an Italian default in question a similar domino effect could be observed, not to mention that many more of the European Union members are in poor position to even service the debt they have now, much less be able to deal with an imploding credit market. Many individuals are speculating that a default by one of these nations would be more systemic and more destructive then the financial crisis of 2008. I’m not too sure to what degree I agree with that statement however, a situation as illustrated would create significant downside in the markets.
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