The S&P hitting 3,000.
Back in March, 2019, I discussed the behavior of the market leaders, particularly Microsoft and the cloud computing industry, and noted that since those leaders were continuing to push higher — the market would as well.
I called a $3,000 price target for the S&P, with Microsoft leading the way… and we got that.
So let’s take a look at Market Leaders…
Normally when you look up ‘leader in the dictionary, you’ll find something like this:
[ lee-der ]noun
a person or thing that leads.
a guiding or directing head, as of an army, movement, or political group.
- a conductor or director, as of an orchestra, band, or chorus.
- the player at the head of the first violins in an orchestra, the principal cornetist in a band, or the principal soprano in a chorus, to whom any incidental solos are usually assigned.
I’m going to add another one to this dictionary definition:
A visionary company, that exhibits consistent growth in their field, with strong technicals and fundamentals. The behavior of its stock gives investors hints on the overall direction of the stock market.
What are Stock Market Leaders, and how do we use them to make money?
The stock market leaders are the companies you’ll find on my ‘Grandma Loves It’ list. These are the companies that are the top weighted, market moving companies within their sectors and industry groups. They’re the visionaries, the forerunners in their groups.
It’s these companies, and the behavior of their technical patterns (held up by their fundamentals), that determine how strong or weak the overall market is.
Just by market cap alone, along with weighting within the sectors and indexes, they have a huge impact on the market. So, even just looking at the math and their impact… it’s huge! But, they also deeply drive sentiment.
Just think about it logically. If our strongest companies are doing great, how does that make you feel about the stock market? The economy? Investing your own money? So, when investors hear about great earnings revenue, and soaring stock prices, they’re more confident to place their money in the stock market. Thus, further driving up prices.
Looking at the Fundamentals
Now, when they back that up, fundamentally, with consistent quarter over quarter, and year over year growth — along with continued innovation within their space, they are pretty hard to stop. Not only does this make them excellent stock investments in the long term, it makes them prime candidates for options trading — particularly for the Run into Earnings.
But, don’t forget… their main use is using them to gauge market sentiment.
Here’s the market weighting, in numbers, showing the top 20 stocks within the S&P 500.
S&P 500 Companies by Weight:
How to Use the Leaders
As you can see, Microsoft, Apple, and Amazon hold the top spots. You’ll notice that in down days in the market, if these are holding on — the market will quickly resume an upward course.
However, on a down day in the market, when these leaders are down 2% or more — this is much more indicative of a pullback to come.
Watching the Market Leaders, and their behavior, is one of the most important aspects of my trading. Whenever I’m a little unsure as to if the market’s going to continue higher throughout the day, or rollover, I simply check my ‘Grandma Loves It’ list.
Some of my Favorite Leaders:
These are a compilation of varying stocks from the hottest industries: communications, consumer staples, and consumer discretionary. Of course, technology’s always at the top of this list. But, don’t forget, there are opportunities in the market in multiple sectors… technology is only one!
Current Price Action
Well, what’s happened now?
Microsoft has made new high after new high, and it has an upcoming earnings report in two weeks. So, while the technicals are incredibly strong, and I’ve been enjoying trading the Microsoft Run into Earnings, all eyes will be on the fundamentals.
Regardless, this leader’s showing us which way the market’s going… and that’s up. If it starts to slip, that’s when I’ll start protecting more of what I have. But today, with the S&P breaking through $3,000, closing above it, and our leaders continuing to soar — I’ll stay long until I see price action that tells me otherwise.