Our longstanding readers know that one of our favorite ways to make money on Wall Street is to find and own leading stocks. We keep things simple and define leadership by looking at the strongest performing stocks in the market at any given time. Why? Because, by definition, those are the stocks that the big institutions are accumulating. History shows us that the strongest performing stocks in the market refuse to budge when the market falls, and are the first to rally when the market moves higher.
How To Find Leaders - Look for Strong Relative Strength
A great way to find leaders is to find stocks that exhibit strong relative strength. Relative strength simply means that stock A outperforms its peers and the major indices. These stocks, by definition, are the strongest performing stocks in the market and are typically trading at/near new high ground even if the market is moving sideways or in trouble. The stocks that exhibit the strongest relative strength tend to be the biggest leaders when the correction is over. It is important to note that the rules change in a bear market.
Lots of Setups - Even In A Weak Tape
This year has been a great example of a narrow group of leaders acting well even as the major averages are not acting well. The major indices moved sideways from January to August with support near 2040 in the S&P 500, and resistance near 2134. During this time, leadership narrowed considerably but the stocks that were "leading" acted very well and enjoyed very nice gains. Then, on Thursday, Aug 20, 2015 - (the Thursday before the Monday 8/28 crash) the S&P 500 sliced and closed below support 2040 - and plunged considerably over the next few days. Since the huge Aug 28, 2015 sell off, the market has moved sideways to digest that big decline (normal action).
Conviction Leaders List
Right now, we have a list of 50 leading stocks that look GREAT - even though the major indices are in trouble. Our conviction leaders list is sent to members at FindLeadingStocks.com. Next week is the end of the month and end of the quarter - barring some unforeseen sell-off, we would not be surprised to see an end of month or end of quarter bounce (window dressing) from here.
Here are 3 Leading Stocks for Your Review:
Starbucks Corporation ($SBUX)
Buffalo Wild Wings ($BWLD)
Amazon.com, Inc. ($AMZN)
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer