One of the most maddening things about this advance off of the March low is that conventional momentum indicators have been showing negative divergences for weeks or even months while this market grinds higher.  Volume analysis has also been an exercise in futility as liquidity just keeps being funneled into equities - common sense be damned. 

Those of you who have read my posts in the past know that I like to use a wide variety of indicators that do not mimic each other.  For example, I always try to use a volume based indicator with a price momentum indicator.  I almost never use stochastic with an RSI, for example, because they measure the same thing - price momentum.  A multi dimensional look at the markets is always best. 

One of my favorite indicators over the years has been the Nasdaq Oscillator which measures the strength of Nasdaq advances and declines.  That can give an accurate picture of the strength that is behind price moves.  If prices are moving higher, yet the Nasdaq Oscillator is diverging, that is usually a good indication that a pullback is developing, as market internals are not backing up price movement.  If any of you have paid close attention to this indicator, it tracks very closely with the 14 period RSI, yet it is based on a totally different data set. 

I have also paid attention to how firmly market participants are embracing risk by measuring money flows underneath the market between sectors, styles, and even fixed income.  After much thought and trial and error, I have developed an indicator that I believe quantifies these flows.  It is an indicator that trends well, gives great signals on trend line and support/resistance breaks, and has certain bull market and bear market characteristics. 

In the daily chart of the Nasdaq Composite below, first notice how the risk indicator fell out of bull market territory (below the green dashed line) right off of the market top in November 2007.   That showed that investors were moving away from risk even as the market pushed to new highs.  The risk aversion among investors kicked off the horrific decline that culminated in the now famous March 2009 market low.   The indicator then gave a buy signal in March when it broke above the reactionary high it posted in early January.  Since then the risk indicator has trended higher right along with price until it broke its uptrend line about a month ago, and is now in danger of sliding back into bear market territory.  Since then I have been advising my newsletter readers to reduce overall equity market exposure.  Today the market opened to news that Dubai is having major financial difficulties, but it remains to be seen how this plays out. 

Will this be THE top?  My gut says no, that the world will once again crank up the printing presses to cover up yet another global financial mess.  This can only go on for so long, however.  If they can once again push this market higher good for them, but based on investors once again moving away from risk I want no part of it.