New Leaders are Stepping Up

by Darrin Donnelly on December 19, 2010

Click on chart to enlarge.

Click on chart to enlarge.

Sometimes, to get an accurate picture of an individual stock or the market as a whole, you need to take a step back and take a look at the broader view. 

For Darvas trend traders, that means scrapping the daily charts we normally rely on and evaluating the WEEKLY charts.

Last week, several leading stocks moved aggressively lower on Tuesday and Wednesday.  This spooked many traders out of positions.  In fact, three of our Darvas stocks were stopped out early in the week.

But it isn’t time to sprint for the exits.  While three of our stocks were sold last week, three other stocks hit buy points and took the place of the three positions we exited.

When we examine the weekly charts, we see that the indexes fought back to end the week higher.  The NASDAQ actually hit its highest level since January of 2008 on Friday. 

In the 52-week chart that accompanies this article, notice how the NASDAQ is continuing its trend of higher highs and higher lows.  Such behavior is rarely seen in a market that is under pressure.

I think we’re seeing some leadership rotation right now.  The longer a bull market marches higher, the more likely it is that you’ll notice some past leaders fizzle out while new stocks and industry groups come in to fill those leadership shoes.

In particular, Chinese stocks have been surging higher for quite some time.  But over the past few weeks, this pattern has changed as several long-time winners have been blasted by the market.  This culminated with the breakdown of BIDU last week. 

Is this the end of the run for some of these leaders or are they just resting up for another big run?

Only time will tell us for certain, but when three new Darvas stocks give us new buy signals and instantly take the place of the three positions we just sold, this action tells me that traders need to be on the lookout for the next big leaders. 

These buys and sells are all detailed in the latest issue of Darvas Trader PRO.

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