Volume divergence on SPY

It’s been a while since the last bearish post on the stock market. Clearly it has been wrong to be bearish, and I’ve paid for it. The market marches steadily higher, but it is currently displaying some signs of internal weakness that tell me it may initiate a choppy, medium-term downtrend soon.


First notice in the chart above that the market has carved out a nice 3-wave rally since the March 2009 low. Each subwave (A and C) has formed in 5-waves. Wave-5 of Wave-C appears to be some sort of ending diagonal. What is more interesting, however, is that on-balance volume has been trending lower even as price rallies, which indicates that this market is living on borrowed time. Look out below!