Blow-off Top (Spike Top) on S&P-500 index chart.Since Thursday of last week, the 'Chart in Focus' has been the trend in volume on the S&P-500 (SPX); specifically with respect to the possibility of the formation of a blow-off top (or "spike top") on the index.

While this instance may not wind up in the textbooks as a perfect representation of a blow-off top (strictly speaking, however, there rarely is a perfect "textbook" example), at the very least it presents a very good case study for why traders need to pay close attention to the trend in volume vis-a-vis the trend in prices.

When we originally featured the then-potential spike top formation on SPX, we mentioned that sustainable bull runs typically take place with a gradual rise in volumes; occassionally, volumes hold steady or even decline slightly.

Rarely, if every, does a major market index continue to rally with sharply increasing participation on the part of investors.

As such, the surge in volumes from a level of around 4B in early-September, to virtually 6B barely two weeks later, was a sign that something was amiss.

We'd mentioned that the scenario stunk of "panic buying," as far as we were concerned. In other words, those investors who were spreading tales of doom and gloom (you know, the Jim Cramer-type) in March, when we were suggesting that a major bottom might have been forming, were now starting to find themselves under-invested and panicking at having lost the opportunity to have participated in a 60% rally, which was leading them to pile in and buy with impunity (hence the surge in price and volume levels).

Such a scenario presented traders who had bought between March and the present, the perfect opportunity to sell and book profits and to leave stocks that had possibly completed their bull moves, in the hands of the late-comers.

Now, whether this proves to be a big turning point in the markets or just a little hiccup within an ongoing intermediate/major bull run remains to be seen...

However, the lesson to be learned from the past two days (actually more like the past three hours) of trading, during which the indices have lost 3% from their highs, is that you can read as many economic reports and fundamentals-based articles as you like, but at the end of the day the only way you're going to be ahead of the curve, as opposed to "Monday morning quarterbacking", is to keep up with the pure evidence (be it price action, volume, moving averages, bollinger bands, momentum indicators, what have you) that manifests itself on the charts!