LACK OF LEADERSHIP

One of the requirements for any sustainable uptrend is leadership among growth stocks. When the market bottomed in March 2009, it became very clear (eventually) which stocks where going to lead; just as in every bull market certain names will assert themselves.

Not all of the leading stocks moved immediately, but through 2009-10 these growth names quickly were identified by funds and institutions as "go to" issues. All of these stocks had accelerating sales and earnings growth; coupled with high ROE and pre-tax margins. But, also important, these names were very liquid. Liquidity is the key for almost all institutional investors. I see many smart people identify great looking charts and many have terrific sales and earnings growth. But as the end of the day, if they aren't trading at minimum $75MM per day they will have a hard time attracting institutional investors.

What is my point? The "Big 10" names of the last Bull Market are on the ropes.

AAPL AMZN BIDU CMG DECK GMCR ISRG LULU NFLX PCLN

For the exception of ISRG, all are under either the 50 DMA, 200 DMA or both. This is a sign that institutions that hoarded these names are selling and in some cases with both hands (i.e. NFLX and GMCR). This is significant because for the first time these stocks are loosing some support and experiencing severe distribution. In some cases, these growth names are now being mentioned as value opportunities.

Stats have indicated maybe one out of seven or eight prior leaders will go on to lead in the next bull cycle. So maybe ISRG or AAPL or one of the others can base and then resume to new highs. But, chances are these stocks are done in terms of being leaders. It doesn't mean that they aren't great companies and won't be leaders in their respected markets. But price progression is based on sales and earnings growth. Which is why institutions have ridden these horses and now are on to the next new leaders.

What will lead the next bull market? Market corrections are the time for these new leaders to begin to assert themselves as they outperform the general market. Identifying stocks with high relative strength during intermediate pullbacks and bear markets is the key to hopefully landing one of the new leaders coming out of the blocks. Institutions begin to build their positions which leaves the elephant footprints for us to follow.

The bottom line is the market is either in an intermediate pullback from an prior uptrend or we are beginning the 3rd leg down of a bear market. Time will tell us but the fact the prior leaders are coming unglued and there is no sign of new leadership tells me cash is best.