This will be your best early-alert system.
Remember to listen to what the stocks are telling you, not the pundits. It’s important to recognize the new crop of top-performing companies and industries as early as possible. Fewer than 25 percent of market leaders in one cycle generally lead the next cycle. The leaders of the past bull market rarely lead the next rally, so expect to see unfamiliar names. Each emerging bull market tends to send up its unique set of leaders. This is a good sign that the mar- ket has bottomed or is getting close to a bottom.
The better stocks start moving into new high ground as the market rallies off its lows. As the overall market is bottoming, your watch list should multiply over a number of weeks. This is due to excessive overhead supply created by the steep price decline. A correction of more than 50 percent is generally too much, and a stock could fail as it reaches or slightly surpasses a new high. Generally, the correction for a healthy stock from peak to low will be contained within 25 to 35 percent and during severe bear market declines could be as much as 50 percent, but the less, the better. If the market is indeed bottoming, a growing number of stocks will dis- play improving relative price strength while they go through a compara- tively tight price correction. All of them displayed superior relative strength before they advanced significantly. In 1999, many of the best stocks took just one week to run up 20 percent some did it in only three days. 186 TRADE LIKE A STOCK MARKET WIZARD to surge on average 484 percent.
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