leaders are the stocks that escape immediately when the market confirms a new rally. In the first few weeks, strong stocks with leadership ability will breakout on volume above the 50-day average. Some of these stocks will switch to the highest volume ever. Typically, newer stocks that came public in recent years will have the most strength for sizable gains.
As more of escape from a similar industry groups within the larger sector, confirming a widespread leadership is established. "Sister Stocks" will usually move in the crowd and lead the way in a similar way. Their charts will show some similarities and their activities and be closely linked. When a leader goes up, so that others in the group. This is not an exact science, but almost anyone could chart the progress of the leaders in the beginning stages of the competition.
laggards are the stocks that do not escape immediately when the market confirms a new rally. They become laggards if they wait several months to finally graduating, and dozens of other stocks have already gone to great rides. Investors must be on the lookout for a healthy correction after several strong months of advancement within a particular group or sector of industry wide. As a correction materializes, the original leaders will be willing to continue to run as long as the 'M' in CANSLIM is always positive. 'M' stands for the market's health.
investors must be on the lookout for stocks that is just the beginning of their progress in the overall correction. These stocks tend to be weaker and more prone to failure. Native leaders will have more institutional support and are more likely to advance further. Laggards will often sport a nice shift in the correction phase, only to disappoint investors with a twist.
Let's use a hypothetical example: XYZ breakouts in October and lasts up to 50% in 3 months, and then pulls back to correct. ABC breakouts than three months later in January, and the correction is taking place (in the same industry group), but has stagnated the last 3 months as well as many other stakeholders in the industry a nice profit groups (such as XYZ ).
laggards remain stagnant in the beginning stages of bull markets. This does not mean that they can have a nice run, it just means that the chances of failure are higher because of the "dumb money" may be cheaper to offer shares in the group.
"smart money", otherwise known as an institution could have ran up stock 'XYZ' for 3 months, and will most likely allow the weak holders to sell before you proceed forward. Meanwhile, the weak holders may be running up the stock investors 'ABC', because it looks cheap. They may reason that it should be moving up, because "xyz" moved up to 3 months ago.
Finally, be careful to analyze each Fund and the condition before you make a commitment. This is the general rule that will help you to choose a leader in a strong industry group. The market does not work perfectly every time to make sure you're ready for anything.
