The recent selloff in equities has produced the worst market stretch since early 2009, before the liquidity induced rally began last March.  Does this mean that buyers have finally exhausted themselves, or will free fed money continue to be funneled into this market? 

One of the trademarks of this rally has been the lack of volume which has been pointed out on numerous occasions in this blog.  The fact of the matter is that from a momentum perspective, this rally hit is peak last fall and the continued push higher over the last four months has been more of a drift higher than anything.  The chart of the Nasdaq Composite below illustrates that point.

The chart consists of a daily price plot in the upper pane, with a 14 period money flow index (MFI) in the middle pane and normalized volume in the lower pane.  Since money flow is price momentum multiplied by volume I thought it was the best tool to analyze the momentum of this rally as it allows volume in its calculation. 

Notice first how the MFI peaked back in September and while price continued to grind and drift higher, the MFI made lower subsequent peaks before showing a very weak negative divergence which preceded the recent selloff.  Now take a look at volume in the lower pane.  The volume levels at the recent top and subsequent selloff are the highest since the rally began in March.  This shows a change in sentiment among traders.  The only question is will the selling run its course before one more push to new highs, or is this a signal that the rally is over?  With the breakdown in the Risk Flow Indicator (see previous blog post), this may be the end of the line.