Weekly Divergences Suggesting a Major Trend Change is Occurring

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This week the major indexes formed bearish MACD crosses (the Russell 2000 didn't quite). This is coming off of a bearish divergence in the weekly MACD as well. You can see from the trendlines on the chart that weekly divergences on the MACD tend to lead to big moves - major trend changes.
This is the McClellan summation index. This is analagous to a cumulative TICK indicator. It sums the raw McClellan oscillator over some period. This is a measure of breadth. It will smooth out and highlight times when advancing issues or declining issues dominate and whether the market is making subsequent higher peaks on higher or lower peaks in breadth. The chart shows a huge bearish divergence in the summation of breadth. The angle and time frame of the divergence are consistent with past major trend changes. Several of those are highlighted on the chart.
This chart shows the % of stocks above the 150 day MA. While there is nothing magic about that average, StockCharts.com keeps this data on a few different averages, and I am just showing this one because it is a longer term average. The point here is again to note the sharp divergence that is occurring now relative to the October highs. This means that despite the market making higher highs, fewer stocks are holding up technically on the new highs. Bottom line is that fewer stocks are making the gains, which is not sustainable. Again, this often happens at major market turns as shown on the chart.

Now this chart shows advancing volume divided by advancing issues. Whenever the ratio of the two has been very low, this has typically been at significant tops. So there is relatively less volume flowing into advancing stocks. I keep track of this ratio regularly, but I never really look at the declining volume divided by declining issues. So I did this, and the chart actually turned out very similar. Less volume flowing into declining issues at tops. So this prompted me to think that total volume was just low relative to the advancing issues. So I that is basically what I am showing in the next chart.

This chart I actually flipped the ratio (now issues/volume) because it is more visible this way. So, the first thing to note is that there seems to be a seasonal pattern to the ratio as you would expect. Total volume drops around the holidays, so particularly around Christmas/New Year's we would expect to see this ratio increase because volume drops. However, we can also see in August 2008 that the ratio spiked and this also occurred at a top prior to a large decline. And looking back at other market tops, while not as extreme, tops have tended to occur as the volume becomes relatively low in this ratio.

I do not subscribe to StockCharts.com so I don't have access to the longer term charts. I will try to get some more background data on this to see how consistent it is in other market environments.

So the message seems clear from this and also from sentiment/contrarian data that I've shown, that this is probably a major trend change. I think it most likely this will put us in a new bear market (if we define that as a 20%+ decline prior to new highs). The bigger question I have is whether the market makes new bear lows or not.

As a side note, a volume by price chart shows that the area of heaviest volume traded beneath the market is 850-900 on the S&P. So if the market does form a major turn, a simple look at price and volume support and resistance would suggest the June 2009 high (950ish) and July 2009 low (870ish) as well as the noted volume support at 850-900 would suggest that the 850-950 broad range would be a reasonable expectation for the decline. If it gets that far, of course we'll have to reassess at that point on whether there is more in store or not.