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Volume can be an important indicator in spotting market turning points. A trend should be supported by sustained and healthy levels of volume. If volume begins to fade, this may be a sign that the trend is weakening. The market is exhausting the buying or selling pressure that is supporting the current trend.

There are also instances of "blow off peaks" (or troughs) in which the mania or fear in the market reaches a feverish intensity and all the buying or selling pressure feeds back on itself and is exhausted in a very short period. This is more common in bubble (or crash) situations where volume increases with the continuation of the trend rather than normal market action.

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== Overbought / Oversold Conditions ==

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Some technical indicators may be used to determine if a security is overbought or oversold. An overbought or oversold condition will not tell you much by itself, as trends may continue with overbought or oversold conditions for quite some time, but it can serve as a warning sign. Securities often reach extremes before they begin to turn, correct, or consolidate. Overbought and oversold conditions can serve as a warning. They indicate that additional attention may be warranted to determine if a correction, consolidation, or ~~break in~~ trend is near.

== Comparison and Cross Market Analysis ==

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When investors and asset managers become worried that stocks may turn downward, they tend to abandon high beta stocks ~~for~~ safer low beta stocks. This means the traditionally "safe" sectors of utilities, telecom, and consumer staples should begin to outperform more aggressive sectors like industrials, materials, and technology.

When investors and asset managers become worried that stocks may turn downward, they tend to abandon high beta stocks in favor of safer low beta stocks. This means the traditionally "safe" sectors of utilities, telecom, and consumer staples should begin to outperform more aggressive sectors like industrials, materials, and technology.

There may also be a shift from stocks in general, to safe haven assets such as treasuries and precious metals.

The reverse is true for spotting market bottoms. There will be a shift from safe haven and conservative investments to high beta, aggressive assets.

== Valuation ==

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When stock valuations are high, it is usually the result of high expections for earnings growth. The converse is true of low stock valuations. Often times these expections, whether high or low, outpace reality. When valuations become exceedingly high or low, a reversal may be near. It is important to note that this valuation based approach ~~is much safer with long term, broad market trends rather than individual stocks~~. As Keynes says, "The market can remain irrational longer than you can remain solvent."

When stock valuations are high, it is usually the result of high expections for earnings growth. The converse is true of low stock valuations. Often times these expections, whether high or low, outpace reality. When valuations become exceedingly high or low, a reversal may be near. It is important to note that this valuation based approach can prove risky if valuations fail to reverse. As Keynes says, "The market can remain irrational longer than you can remain solvent."

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When looking for a top in an individual stock, the high flyers are usually a good place to start. These companies are usually publicly visible. They provide products or services that the average person will use or encounter in their every day life and are often times considered innovative or ~~different~~ from their competition. They also tend to have high growth expectations and get a lot of media attention. All this public attention and enthusiasm should be coupled with impressive stock price appreciation. While earnings growth may occur, even at high levels, a dramtic increase in P/E ratios should be seen as the stock price continues to climb. When all these things occur, it is usually a good indication that the stock price and growth expectations have become disconnected from reality. However, ~~there~~ is ~~no way~~ to tell when the eventual top will occur.

When looking for a top in an individual stock, the high flyers are usually a good place to start. These companies are usually publicly visible. They provide products or services that the average person will use or encounter in their every day life and are often times considered innovative or distinct from their competition. They also tend to have high growth expectations and get a lot of media attention. All this public attention and enthusiasm should be coupled with impressive stock price appreciation. While earnings growth may occur, even at high levels, a dramtic increase in P/E ratios should be seen as the stock price continues to climb. When all these things occur, it is usually a good indication that the stock price and growth expectations have become disconnected from reality. However, it is difficult to tell when the eventual top will occur.

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