How to Spot Future Stock Market Leaders
by Mark Galasiewski
Updated: May 01, 2020
Hey everyone...Mark Galasiewski here. Many global stock markets have seen extraordinary rallies over the past several weeks, so now is an excellent time to identify the rally leaders. That's because the leaders of the initial wave up after a bear market often outperform during the bull market that follows. Let me give you some recent examples.
This chart shows that the Vanguard FTSE Emerging Markets ETF corrected about 40% from September 2014 to January 2016.
Toward the end of a correction, potential leaders of the next rally often announce themselves by turning up ahead of the broader market. For example, Alibaba and Taiwan Semiconductor bottomed in 2015 and then made higher lows in early 2016 while the broader market hit lower lows. That behavior marked both stocks as potential leaders of the next market rally.
Recent IPOs can also provide leadership. That's because companies often go public when they're growing quickly and need extra capital to fund their expansion activities. For example, Atlassian went public several weeks ahead of the global 2016 lows.
During the initial rally in the new bull market, the new leaders showed their hand by outpacing the general market.
That was easy to notice in the case of Alibaba and Taiwan Semi: those stocks clearly exceeded old highs as the broader market lagged.
With Atlassian it was necessary to break out the calculator. In fact, the stock was the biggest mover among the four issues shown here, more than doubling from trough to peak. But having identified some early rally leaders, investors just needed to bide their time and wait for a significant correction.
That occurred in late 2016. Investors then had the choice of buying during the correction...
...or waiting for momentum to build again, which would possibly signal that the bull market was entering its trending stage.
Either way, investors who identified the early rally leaders had important information to help them potentially outperform later--while the average stock merely recovered to its old highs. Not every early leader goes on to outperform, but that is the way to bet. That's because, once a sector rotation occurs in the market, the strong just tend to keep getting stronger. That's why it's important to monitor both the leading sectors and the leading stocks within those sectors.
During the bull market from 2016, many infotech and semiconductor names were big winners, as these three individual stocks show. But the rally off the March 2020 lows has rotated two new sectors into leadership positions.
"The strong keep getting stronger"
You just saw a great example of how Elliott wave analysis helps you spot future stock market leaders.
Don't stop now -- keep these unique insights coming.
In the weeks ahead, some global markets will sputter. Others may keep their bullish momentum.
Let us help you spot these trends before they start. '
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