The easiest way to identify these stocks is to focus on relative strength. Relative strength measures a stock’s price performance versus the overall equity market. Higher RS stocks with rising RS lines are outperforming the major market indices, as well as the universe of individual stocks.
As these stocks form bases during the market correction, they will often flash subtle clues that they are under accumulation. This will be apparent in the Accumulation/Distribution line and A/D rating, both of which are proprietary O’Neil Methodology measurements used to identify stocks that are under accumulation or distribution .
Technical clues that suggest accumulation by institutions include when a stock hits a higher low in the midst of the market hitting a lower low during a downtrend; a positive divergence that will also show up as improving relative strength; gap-ups or large up days on heavy volume as the stock is building the right side a base; price and volume action in which rallies generally occur on increasing volume and pullbacks on declining volume; downside support at important moving averages, such as a...
One other characteristic of stocks that may represent new leadership in a bull market is strong Industry group participation. Industry group relative strength is good measure of groups that are strong and improving. O’Neil tracks 197 distinct industry groups and assigns a Group Rank to each based on the price performance of the individual components of each group.
While being part of a strong and improving industry group is not a requirement for a stock to lead in a new bull market, the fact is that leading stocks are usually a part of leading industries. Having strong industry support can be an important component in propelling a stock’s price higher. Improving economic conditions and favorable fundamentals within an industry will benefit most, if not all, companies that are part of that group.
Money on to be used , not laying around.
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