What happens to Leadership stocks in a strong rally?
Common sense would tell you that the number of Leadership stocks would expand, and the Strength of the Leadership stocks should increase dramatically.
But, have you ever asked yourself, "What is the key determinant that allows Leadership stocks to do that?"
When you think of it, the answer is pretty simple ... money. The more money flows into the market, the more money is allocated to the Leadership stocks.
There is an old saying: "A rising tide lifts all boats". And essentially, that is what happens, but it happens when the Leadership stocks catches everyone's attention making them feel that they don't want to be left out of a good rally. So ... the stragglers get braver and jump in late, often too late.
There are a number of ways to quantify the "when" of what is early, and what is late.
One of the ways is to simply run a nightly count of the number of Very Strong Stocks on the S&P 500. So, when the count trends up to above zero and continues positive and higher, then a new rally is in occurring. This continues until it pulls back enough to break its rising trend line, or fall below a count of 45 and then on toward negative territory. Which is why we bring this up today ...
If you look at today's chart, you can see that there was a very large pull back in the number of Very Strong Stocks yesterday. Enough so, that the count dropped to the horizontal support line at 45. That is an ALERT condition where what happens next is very relevant to the rally, because if the count continues down into negative territory, then there won't be enough Leadership stocks on the rise to keep the rally going and the market will pull back.