A trader working on the floor of the NYSE in 2007. Bloomberg News


It’s starting to look a lot like…2007.

In 2007, the housing bubble was about to burst and short-term interest rates were close to 5%. Lehman Brothers and Washington Mutual were still thriving. Fast forward to 2015 and conditions could not be more different with near zero percent interest rates, a limping but recovering economy and geopolitical risk everywhere.

So why do several technical indicators look so similar between now and then?

Fortunately, technicals do not have to offer reasons for why things are the way they are. They tell us what is and right now that should give investors pause.

Starting with a simple long-term chart of the Standard & Poor’s 500, the major trend line drawn from the start of the bull market in 2009 is broken (see Chart 1). We can argue about the placement of the trendline and the use of linear and logarithmic scaling but the log-scaled chart drawn here looks to be the best description of the bull market. It runs through major corrections of 2011 and 2014 as a properly formed trendline should.

Chart 1

Standard & Poor’s 500

For non-believers, a trendline drawn from the important 2011 low on a linearly scaled chart (not shown) is also broken at about the same place on the chart.

Note how the momentum indicator called MACD, for moving average convergence divergence, sports crossovers just after the peak in 2007 (and also in 1999). The crossover this year occurred in June, just weeks after the S&P 500 hit its high-water mark.

What this means is that the short-term trend started to head lower even as the long-term trend continued to rise. It was a sign of waning momentum and after a long rally it also suggested caution was warranted.

Another indicator called on-balance, or cumulative volume, also started to head lower as the market peaked. Switching to the SPDR S&P 500 Trust exchange-traded fund (ticker: SPY ) we can see quite clearly that the trend in this indicator has been down all year and that includes during the recent price rebound (see Chart 2).

Chart 2

SPDR S&P 500 Trust

On-balance volume keeps a running tally of volume that changes hands on up-days minus volume on down days. The theory is that when the bulls are in charge they are more aggressive on rallies and that suggests strong demand and money flowing into the market. Most of the time, price and indicator track together but when they diverge we get an indication that the price trend is not what it seems. In other words, demand for the market as represented by the ETF is rather weak.

Market breadth today also shows similarities to 2007. I’ve written here over the past few weeks that small capitalization stocks have been missing from the rally. This is a fact that is often hidden in charts of cap-weighted indexes such as the S&P 500 and that means that a small group of very large stocks are the reason why “the market” looks as good as it does.

For example, Alphabet ( GOOG ), better known to most as Google, is up more than 40% year-to-date. Home Depot ( HD ) is up more the 27%. Amazon.com ( AMZN) more than doubled. Compare that to the S&P 500 barely in the black after 11 months of trading.

This shows up in traditional breadth data, too. Jonathan Krinsky, Chief Market Technician at MKM Partners, wrote in a recent missive that over the last 20 years, the only other times we have seen less than 55% of components above their 200-day moving averages while the S&P 500 was within 2% of a 52-week high have been 1998-2000, October 2007, and July/August of this year.

Half of all S&P 500 stocks are trading below their major averages while the “market” is near its highs. It quantifies that the market is indeed narrow, and as history is a guide, in a very dangerous place.

Of course, such conditions can last for weeks and months so we cannot say that things will head south tomorrow or even in a few weeks. But when the generals charge into battle and the troops do not follow it is probably not a good thing.

With December nearly upon us, conventional wisdom says that the stock market is fully engrossed in the strongest half of the year. According to the “sell in May” seasonal strategy, investors should have jumped back into the market in October.

But this is the first time the Fed may actually start to raise rates in many years. Whether or not that is already baked into the market remains to be seen but the technical environment suggests big problems are already in place.