The market is testing near term support and holding on the major indices. The S&P 500 index tested and closed near the 10 day EMA last Friday. Monday and Tuesday the index tested the support again. Wednesday it closed once again near the same point. How many times do we test the level before it is broken? So far this remains in the test category and we may well move higher, however it is worthy of note and watching as we move forward. As I stated, there is not a clear indication of a reversal or trend change, just some character changes we should watch short term as clues.
Digging down to the leadership of the indices helps give clarity as well. The charts below help complete the picture of what is developing short term is some of the initial leadership of the current trend. The first chart is Apple (NASDAQ:AAPL) which showed a reversal day and caught the attention of most investors and analysts. The weighting of the stock in the major indexes make it worthy of discussion and concern.
Apple has been one of the key components of this move to the upside for the NASDAQ, Technology and Semiconductors. I don't want to say the run is over, but there has definitely been a warning shot fired relative to the current move. The intraday high of $525 and close at at $497 shows new volatility on fives times average volume. There was options expiration and that did or could have contributed to the volatility, but the move is worthy of note relative to the near term action in the broad markets. Money management is about making decisions and investors in Apple have a decision to make short term.
Materials have been in a uptrend and providing leadership on the move off the October and December lows. As you can see on the chart it is developing a rolling top and is testing support at the 30 day EMA. The uptrend remains intact and could test the trend line before the test is over. Looking at charts of Louisiana-Pacific (NYSE:LPX) and Monsanto (NYSE:MON), we see they are breaking down and leading the move lower. Equally charts such as Vulcan Materials (NYSE:VMC) and Ecolab (NYSE:ECL) are still climbing higher within the sector. However, the index move lower shows more negative than positive stocks within the sector. Again, this is a sector/leader to watch near term to see how it plays out and impacts the broader markets.
Transportation was equally a strong leader off the lows in October and December. It shows a similar move at the top of the trend. Like the major indexes there were multiple tests on Friday, Monday and Tuesday. The break lower on Wednesday is clear on higher volume. The trendline off the October low is broken, the break of the 30 day EMA is negative and support at $93.85 gave way on Wednesday's move lower. All negative short term signs. JB Hunt (NASDAQ:JBHT) which has been a leader in the sector made a equally negative move on Wednesday. The break of the 10 day EMA and test of the 20 day for the trucking stock is worth watching as well. These are not definitive trend changes, but they are warning signs for investors and the broad market indexes.
None of these are definitive indicators the market is setting up for a correction or major test for that matter. They are character changes of market leaders that have been trending higher off the December 14th lows. It is important to watch the changes and see how they develop and play out. There are equally stronger views of the market when looking at the technology and semiconductor indexes. Transports and materials are two sectors that show some early signs of cracking. If it spreads, we are aware and react accordingly. If it continues higher, we are aware and continue to benefit on the upside. Risk management is the heart of money management. Keep your focus, set your stops and remain disciplined as this plays out.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.