Many times, market leaders can be at or near the top for months, even years. Apple, Dollar Tree, Ross Stores, AutoZone (AZO) and T J Maxx (TJX), would be some good examples of this. They have been in my top 100 for well over two years. As long as these stocks maintain their performance, value, and trend lines, there is no reason to sell. Too many investors panic every time the wind begins to blow in the market and are never around long enough to cash in big winners like those mentioned above.
Leaders can also fall from grace. Sometimes there is no advance warning, but more often than not, leadership stocks give plenty of warning before they become laggards. Netflix (NFLX) was a leader for almost two years before management decided to raise everyone's subscription price. The stock started dropping in rank until it was no longer in my top 200, and the chart started to roll over. I sold Netflix around $250 and there has been no reason to own it since.
Now that the market is beginning to rotate, many of the more aggressive growth stocks that have led the market are beginning to falter, and new leaders are beginning to filter into my top 200. I have said goodbye and good luck to several of my most profitable positions like Apple and Terra Nitrogen, while others like Dollar Tree and Ross Stores continue to hold up well. It is so important for investors to analyze their portfolio one day at a time and one stock at a time. Making an emotional decision to sell everything and go to cash is what amateurs do.
I am starting to see a lot of my favorite income and growth stocks start to filter into my top 200. That is the beauty of a relative grading system - there are always 200 leaders, no matter what the market circumstances are. In 2008, when the S&P 500 was down 38.5%, Treasuries were up 32%, Dollar Tree was up over 60%, pawnshop operator First Cash Financial (FCFS) was up almost 30% and an inverse ETF like DOG (DOG)was up over 30%. Those were the market leaders back then.