You mention quite often in your reports that you watch the leaders and how they perform during rallies. How do you filter out the leaders to watch them? Is there a special screen that you use? (May 17, 2003)
Looking for leaders depends upon what stage of a rally you are in, but the plan of action is still similar. During the downtrend we would keep an eye on stocks that were in 'building patterns.' That is our name for stocks that are coming off their downtrend and are working laterally, attempting to build the first base off of that trend. Those are not necessarily easy to find other than watching the various sectors and observing which stocks are building. Now before we do that, we also look at what sotcks are growing their earnings and sales at 20% plus clips per quarter. That helps narrow the search. We watch for those that form up and start moving ahead of the the pack. Those that form up those bases and breakout first and have strong earnings and sales growth are typically the leaders in any rally.
After the rally starts we continue to watch those that breakout first and how they perform. EBAY, GRMN, SOHU, SINA, NTES, YHOO, ERES, HITK, OVIT were early leaders and have continued to perform through the rally. There are many others on the reports. Those are stocks that we got into early and have ridden up the rally. We know what these stocks are, so we can keep tabs on them because we are in many of them and it is easy to find them by looking for stocks that are within 10% of their 52-week highs.
Indeed, that is how we narrow the search during the start of rallies or when the market looks as if it is trying to put together a run. We search for stocks that are within 10% to 15% of their 52-week highs. That shows they are leading the market, and as the big gains of the leaders during this rally have shown, it is the leaders that can make you some impressive money as they barely hiccuped during the early part of the year when most of the market was struggling to hang on. From that group we look at those that are growing those sales and earnings at 20%+ per quarter, year over year. Those are the stocks that will typically give the best runs.
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