Be Careful When Leadership Shrinks

As traders we always want to follow the leading stocks in the market. These days we have the MAGA stocks as the real strength in the market. Microsoft Corp (MSFT), Apple Inc (AAPL), Alphabet Inc (GOOG) and Amazon.com Inc (AMZN) are the leading stocks that continue to surge week after week. All of these stocks now have a market capitalization of more than $1 trillion. So we must keep our eyes glued to these names right now. Some other notable leading stocks include Tesla Inc (TSLA) and Nvidia Corp (NVDA) among several others. The actual list of market leading equities is really not all that big at this time and mostly concentrated in the tech sector. So this list is really easy to track and follow on a daily basis.

While technology is in a strong bull market trend right now there are many other important industry groups that are lagging behind or even in bear markets. The energy stocks have been under-performing since may 2018. Many retail stocks are in severe bear markets. Has anyone looked at a chart of Macys Inc (M), Bed Bath & Beyond Inc (BBBY) or Gap Inc (GPS) lately? These stocks are in severe down-trends and look very weak even when they bounce. Steel and other industrial metal stocks look terrible and weak on the charts.

Simply put, you must be careful when the leadership shrinks. At this time, the leadership is in technology stocks. The semiconductors, cloud software and the MAGA stocks are leading the way higher. While this may be fine right now it might not hold up forever. Traders must now watch this group very closely. Should these leaders start to fall the party could be over for a while.