With the markets kicking the short holiday week off by pulling back nearly 3%, it may be a good time to take a look at how some recent market leaders are faring. It is always important to keep tabs on the stocks that have been leading the way higher. Often these stocks will reveal clues about the market's direction far earlier than the indexes.

If any one stock could be considered a market leader, it would have to be Apple (Nasdaq:AAPL). AAPL was one of the first stocks to recoup its bear market declines and has been hitting new all-time highs since late 2009. It continues to find buyers on every pullback. While AAPL was at new highs as recently as last week, traders should be wary of the recent price action. AAPL suffered through some selling in mid January, when news emerged that CEO Steve Jobs would be stepping down due to health issues. After bouncing to new highs, AAPL now finds itself back in the middle of the "post-Jobs" trading range. In addition, overall volume is now very high considering the stock's price is basically in the same place. This is a warning sign that distribution may be taking place. Traders should keep a close eye on the $325 level, which held in January and was a prior resistance level. If AAPL falls beneath this level it could confirm at least an intermediate top.

Source: StockCharts.com

Amazon.com (Nasdaq:AMZN) has also been a market leader over the past few years and it too surged to all-time highs in late 2010. AMZN is approaching an amazing $100 billion market capitalization (80.03B as of 2/22/2011) and is the clear leader in the online shopping space. Much like AAPL, AMZN has been under pressure recently. It dropped under an important support level near $173.50 in late January but bounced back a few sessions later. While the bounce took it to its recent highs, AMZN has started to pull back again from the $190s and is threatening to form a double top. Traders should keep an eye on the recent lows near $166 as a drop below this level would confirm the double top. (For more, see Analyzing Chart Patterns: Double Top.)

Source: StockCharts.com

Netflix (Nasdaq:NFLX) is another stock that has been a market leader for the recent rally. As expected, it is also just a few days off its all-time highs. While NFLX also pulled back with the markets on Tuesday, it is in much better shape than some other "leaders". For one, NFLX is still well above its recent base and has a breakaway gap beneath $204 that may act as support on weakness. While the volume on the weakness is above average, the volume on the breakout was actually higher. NFLX appears to be in good shape and may be a good candidate to watch if the markets continue to shrug off weakness.

Source: StockCharts.com

While many may point to Google (Nasdaq:GOOG) as the obvious leader in the internet search space, the clear leader in terms of stock performance is the Chinese search stock, Baidu (Nasdaq:BIDU). BIDU has rallied from a bear market low near $10 to over $131 in a couple of years. BIDU had started working on a base in late September and after a few shakeouts was able to gap above the base and surge higher. Much like NFLX, BIDU appears to be in decent shape despite the pullback over the past couple of days. BIDU is still above its base; traders should watch gap support to see if buyers step in at these support levels.

Source: StockCharts.com

The Bottom Line
While none of these market leaders has completed any topping patterns, a couple appear to be close. The markets have remained far more resilient than most expected over the past few months, and traders should not rush to call a top on every distribution day. Tops take time to form and the market leaders will likely provide vigilant traders with advance notice. Traders should monitor the action in these stocks to see if market participants still have an appetite for buying the dip. (For related reading, see Trader's Corner - Shoot The Moon...And Hit It!)

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

Related Articles
  1. Technical Indicators

    Explaining Autocorrelation

    Autocorrelation is the measure of an internal correlation with a given time series.
  2. Chart Advisor

    ChartAdvisor for October 9 2015

    Weekly technical summary of the major U.S. indexes.
  3. Chart Advisor

    These Oil & Gas Stocks Have Reversed

    It's been a long downtrend for oil stock owners, but there's hope. These four oil and gas stocks have reversed and may keep trending to the upside.
  4. Chart Advisor

    4 European Stocks to Consider Buying

    European companies, listed on US exchanges, that are providing buying opportunities right now.
  5. Chart Advisor

    ChartAdvisor for October 2 2015

    Weekly technical summary of the major U.S. indexes.
  6. Investing

    How Diversifying Can Help You Manage Market Mayhem

    The recent market volatility, while not unexpected, has certainly been hard for any investor to digest.
  7. Technical Indicators

    Why MACD Divergence Is an Unreliable Signal

    MACD divergence is a popular method for predicting reversals, but unfortunately it isn't very accurate. Learn the weaknesses of indicator divergence.
  8. Chart Advisor

    Expecting a Big Breakout In These 4 Stocks

    These stocks are tightly wound following big moves, and upon breakout more big moves could ensue.
  9. Chart Advisor

    Trade Base Metals With These 3 ETFs

    News out of Alcoa is causing active traders to turn toward base metals for opportunities. Before diving into the market, check out the charts of these three ETFs.
  10. Charts & Patterns

    The Importance Of Tracking The Whisper Number

    Don't let the name fool you: Whisper numbers are making themselves heard. Here's why you should be paying attention.
  1. 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 >>
  2. 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 >>
  3. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  4. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  5. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  6. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!