Blow-off Top (Spike Top) on S&P-500 index chart.Since Thursday of last week, the 'Chart in Focus' has been the trend in volume on the S&P-500 (SPX); specifically with respect to the possibility of the formation of a blow-off top (or "spike top") on the index.

While this instance may not wind up in the textbooks as a perfect representation of a blow-off top (strictly speaking, however, there rarely is a perfect "textbook" example), at the very least it presents a very good case study for why traders need to pay close attention to the trend in volume vis-a-vis the trend in prices.

When we originally featured the then-potential spike top formation on SPX, we mentioned that sustainable bull runs typically take place with a gradual rise in volumes; occassionally, volumes hold steady or even decline slightly.

Rarely, if every, does a major market index...

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S&P-500 chart highlighting volume trend.The negative divergence on MACD - on the daily charts of the S&P-500 and the Dow Industrials - was the previous 'Chart in Focus.' Despite hanging on well after the markets themselves had moved to new highs, that potential sell signal has finally become defunct. If you look purely at the trend and ignore other aspects such as the bollinger bands, volume levels, momentum indicator readings and so on, you'd get the feeling that its all systems go, and that a continuation of the rally is inevitable.

No doubt, it makes absolutely no sense to fight the trend; it never is. And traders better have a good reason to be opening any short positions, at this juncture. However, whilst trading with the trend makes sense, traders who are successful over the long run also realize that it is important to be prepared for any and all eventualities. After all, markets often reverse course just when most market watchers least expect it to.

So, in the interest of playing devil's advocate, as well as keeping abreast of all potentialities, we're going to focus in on the trend in volumes on the S&P-500, over the next few sessions.

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The move to new minor (and intermediate) highs last Friday nullified a few sell signals that had cropped up in the preceding week.

As things stand now, the minor and intermediate trends will be seen as bullish, as long as the S&P-500 stays above the broken resistance level at 1010. The bears have no chance until/unless prices fall below 1010.

However, the bulls should not take things for granted. There is an interesting development on MACD that could put the cat amongst the pigeons. As the chart on the right shows, there is a potential negative divergence on the momentum indicator.

Traders will want to watch the indicator closely, over the coming sessions. If the indicator moves to a new minor high, the divergence will be moot. On the other hand, if it puts in a top below the last high and thereafter goes on to break the intervening trough, a strong sell signal will be generated, on the minor trend.

This potential sell signal has manifested itself on several of the broad market indices. We're using the S&P-500 as a proxy for the rest.