Bull markets are defined by leading stocks moving up, taking their place at the top of the heap. Market leadership is needed for movement in both directions, but most usually recognize when the upside leaders are visible. Looking at some charts from early May it’s not hard to find the ones leading the market lower – just pick any names in the energy area, technology, banks or industrials, even transports.
The fall from early May was concentrated in broad groups, it wasn’t hard to find any name that wasn’t going down. The prior instance saw strong leadership on the way up – many in this group were technology, Apple being one and Priceline, or Amazon being another. However this time around we are seeing new leaders emerge which is typical of rotation.
You see, fresh money comes into names that are producing good earnings growth and other positive fundamental metrics which in turn improves chart and technical patterns. Some of the best patterns are in names you may not even know but probably will soon enough. If this market breaks out of a range to the upside, it is these names that will lead the market higher – not the old guard.
Some of the recent leaders like Google, Qualcomm, Tiffany, Fossil, JP Morgan, Baidu, US Bancorp, Salesforce.com, and Lululemon will not lead the next rally. Names like Whole Foods, Athena Health, Cerner, Ebay, General Electric, Clorox and Dunkin Brands have emerged as strong stocks winning institutional sponsorship. While these stocks are at/near all time highs they are exhibiting the type of behavior indicative of quality moves.
We can argue all day about buying low/selling high vs. buying high/selling higher. This is a market fed on liquidity, therefore buying when others are buying (or where money is flowing) is a good bet. We may see more liquidity helicopter drops by other central banks soon enough which undoubtedly will find its way into the equity markets. Some of the better looking charts are below, see the common patterns of breakouts on higher volume and you will understand why these are poised to lead.
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