It's always important to pay attention to market leaders, as they are usually the last to break down and the first to recover in a market cycle. Stocks will often show signs of weakness while the market leaders continue to prop up the indexes and paint a picture of market strength. Rallies on dwindling participation are generally destined to fail, and once the market leaders falter, this often signals the start of a reversal. The general markets will rarely make a sustained move without the cooperation of market leaders.

The leaders of the last bull market were dubbed the "Four Horsemen"; in this case, Apple (Nasdaq:AAPL), Research in Motion Limited (Nasdaq:RIMM), Google Inc. (Nasdaq:GOOG) and Amazon.com (Nasdaq:AMZN) led the charge. While market leaders typically don't carry over to the next bull market, tech stocks have been holding up much better than the general markets over the past few months, and these stocks are still worth watching. With the current rally starting to show signs of weakness, it may be a good time to step back and see where the Four Horsemen of tech are in the grand scheme of things, and see if we can glean any clues as to where the markets are headed. In order to get a better understanding of the larger picture, we are departing from our usual use of daily charts and switching over to weekly charts.

IN PICTURES: 7 Tools Of The Trade

The Apple of the Market's Eye
Apple is generally regarded as one of the strongest stocks of the last market cycle, and it fits any definition of a market leader. While AAPL has been performing very well over the past few months, rallying from the $80s to more than $140, it is still well short of its all-time high. It's very possible that AAPL is setting a lower high in this area, which would be followed by a correction or resumption of the downtrend. Signals on weekly charts should not be ignored, as they are less prone to the noise of day-to-day price movements.

Source: StockCharts.com

Research in Motion Pulls Up Lame
Research in Motion Limited
suffered through the sharpest decline of the Four Horsemen stocks, dropping more than 70% from its bull market highs. RIMM formed a strong double bottom shown in the green box on the weekly chart, although the daily chart is littered with violent moves in both directions. Much like AAPL, RIMM was only able to retrace a portion of the decline, and has already begun a correction after setting a lower high. The question is, will RIMM find support near the double-bottom base and resume its trek toward prior highs, or is this lower high portending new bear market lows? (For related reading, see Multiple Time Frames Can Multiply Returns.)

Source: StockCharts.com

Investors Searching for Google Bottom
The chart for Google is similar to that for AAPL in that it has made a series of progressively lower highs. GOOG appears to be stalling at a price point ($440) that has proved to be a critical level in the past. GOOG could easily shed $100 of its share price even if this move ends up being a correction to the recent rally.

Source: StockCharts.com

Amazon Booking Strong Stock Prices
Amazon.com
has been the strongest of the four stocks over the past year, rallying more than 140% from its October lows. AMZN retraced a large portion of its bear market correction, and, at $110, is not too far from its all-time highs. However, in the near term, it appears that AMZN is coming under pressure, after testing a prior pivot high near $90. It could be setting a lower high here as well, which could lead to much lower prices.

Source: StockCharts.com

Bottom Line
In stepping back and reviewing the above charts, it appears that these leaders are all at logical areas for selling pressure to drive prices lower. All appear to be in the process of setting lower highs on the weekly chart, but they also are well above their recent lows. It is too early to know if they are in the process of resuming the larger overall bear downtrend, or of this is the first correction in an early bull market. If this is simply a correction of the recent rally, then we need to watch for higher lows to form in the next several weeks at levels above the November lows. As traders, we must keep an open mind and watch the charts to see what unfolds.

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Active Trading Fundamentals

    4 Stocks With Bullish Head and Shoulders Patterns for 2016 (PG, ETR)

    Discover analyses of the top four stocks with bullish head and shoulders patterns forming in 2016, and learn the prices at which they should be considered.
  2. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  3. Chart Advisor

    Uptrending Stocks Dwindle, a Few Remain (EW, WEC, WR)

    The number of uptrending stocks is shrinking, but here a few that remain in uptrends.
  4. Chart Advisor

    Trade Setups Based on Descending Trend Channels (LBTYK, RRC)

    These descending trend channels have provided reliable sell signals in the past, and are giving the signal again.
  5. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  6. Stock Analysis

    Are U.S. Stocks Still the Place To Be in 2016?

    Understand why U.S. stocks are absolutely the place to be in 2016, even though the year has gotten off to an awful start for the market.
  7. Investing News

    U.S. Recession Without a Yield Curve Warning?

    The inverted yield curve has correctly predicted past recessions in the U.S. economy. However, that prediction model may fail in the current scenario.
  8. Chart Advisor

    Breakout Opportunity Stocks: CPA, GNRC, WWE

    After a period of contracting volatility, watch for breakouts and bigger moves to come in these stocks.
  9. Investing

    Retirees: 7 Lessons from 2008 for the Next Crisis

    When the last big market crisis hit, many retirees ran to the sidelines. Next time, there are better ways to manage your portfolio.
  10. Economics

    Industries That Thrive On Recession

    Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity.
RELATED FAQS
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  3. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  4. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  5. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  6. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center