While stocks continue to flirt with new rally highs, trouble brews beneath the surface.

A slew of short-term technical indicators are falling out of overbought territory including various stochastic and momentum measures. Breadth continues to narrow, with the percentage of NYSE stocks over their 10-day moving average dropping from 81% to 64% on Tuesday even as the NYSE Composite Index (NYA.X) closed just 1.1% away from the rally price high set on Monday.

Translation: Fewer and fewer stocks are holding up the major indices like a foundation made of sand that is slowing melting away. In fact, the situation looks somewhat similar to what happened between May and June before equities slumped into the July low.

We're also seeing a number of divergences as it becomes apparent the market's rising tide is no longer lifting all boats. This is mostly being driven by rising risk aversion: Just look at the Consumer Discretionary SPDR (XLY) is losing strength relative to the Consumer Staples SPDR (XLP). Investors are taking a more pessimistic view of the consumer as they ditch luxury brands like Coach (COH), restaurants like Darden (DRI), and homebuilders like DR Horton (DHI) from their portfolios while adding defensive names like Procter & Gamble (PG) and Wal-Mart (WMT).

Other examples include the way small cap stocks in the Russell 2000 failed to push to new highs as the Dow Industrials punched through the 10,000 level last week. The Dow Transports (TRAN), which includes the railroads and trucking companies on the front lines of the economy, has also lagged.

Over the long haul, however, things still look good. One interesting observation along these lines is the amount of margin debt outstanding. As you can see in the chart above, which plots NYSE margin debt from 1943 through August, investors have plenty of purchasing firepower left in their armories.

These unspent dollars will serve as a reservoir of capital with which future stock price appreciation will depend. Until equities become overbought on more long-term technical measures, and until we see an exhaustion of buying resources, the bull market will live on -- even if plagued by occasional weakness.

Disclosure: The author does not own or control a position in any of the funds or companies mentioned.

Anthony Mirhaydari is a researcher for the Strategic Advantage investment newsletter. He can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.