Bull markets are defined by the movement of leading stocks as they rise and take 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 or even transports.
The broad market decline from early May was concentrated in broad groups -- it was hard to find any name that wasn't going down. The prior instance saw strong leadership on the way up, and many in this group were technology, such as Apple (AAPL), Priceline (PCLN) and Amazon (AMZN). But, this time around, we are seeing new leaders emerge, and that is typical of rotation.
The process here is that fresh money comes in to names with good earnings growth and other positive fundamental metrics -- and that, in turn, improves chart and technical patterns. Some of the best patterns appear in names you may not even know about, but which you'll probably be familiar with soon enough. If this market breaks out of a range, these names -- not the old guard -- are those that are likely to lead the market higher.
Some of the recent leaders, such as Google (GOOG), Qualcomm (QCOM), Tiffany (TIF), Fossil (FOSL), JPMorgan Chase (JPM), Baidu (BIDU), U.S. Bancorp (USB), Salesforce.com (CRM) and Lululemon (LULU) will not lead the next rally. Names like Whole Foods (WFMI), Athenahealth (ATHN), Cerner (CERN), eBay (EBAY), General Electric (GE), Clorox (CLX) and Dunkin' Brands (DNKN) have emerged as strong stocks winning institutional sponsorship. While these stocks are at or near all time highs, they are exhibiting the type of behavior indicative of quality moves.
We can argue all day about buying low and selling high vs. buying high and selling higher. This is a market fed on liquidity, so 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, and these would undoubtedly find their way in to 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.
As always, I would love to read your comments!
