A Look Long-Term Price/Volume Diffusion Index

I generally only show the short-term picture of the Price/Volume Diffusion Index (PVDI). However, you may be wondering what the longer-term chart of the diffusion index looks like, to see if there is anything that can be gleamed from the historical results. The chart below shows the the 20-year history of the S&P 500 and the 30-day moving average of the PVDI. The moving average is used in place of the actual because the long-term daily PVDI trends to show a degree of volatility over longer periods of time. 

What sticks out is that the demand levels as measured by the PVDI tails off ahead of the market tops in 2000 and 2007/2008. As the S&P 500 tracked higher in value, the price/volume dynamics tailed off. Looking to the present period, the S&P 500 has moved to new and restest highs. In conjunction, the moving average of the PVDI is trailing off. In fact, the moving average is missing the decline in latest week, as the PVDI has fallen to about the 45 demarcation.

As I stated previously, none of the current results in of themselves suggest a major market meltdown. For example, since the early 1950's a PVDI in decline, under 46, and below the moving average has been, on average, followed by 6-month and 12-month returns of just about 3%. This compares to average 6-month and annual returns of 4% and 12.6%, respectively. Nothing to get worried about, depending on your investment horizon, just yet. That said, current PVDI results may not be screaming a sell just yet, but they are flashing a warning.