The market is currently up about 15%and offering significant support to theS&P 500, which is hovering around1000. History has proven that leaders emerge inthe early stages of a bull market. Physician investorsshould already be finding new leadershipin the emerging bull market.
Before a physician-investor beginsto search for the surfacing leaders,they should be sure that the market isreally strengthening. If the generalmarket is in a downtrend, great stockshave a difficult time overcoming theweight of the overall market sentimentand performance. Many companieshad outstanding fundamentals andstrong earnings growth, but failed tomake any headway from 2000 to 2003due to the overall market environment.
To identify market strength, notethe daily activity and how the indexesare shaping up. An encouraging sign isfound in accumulation and distributiondays. An accumulation day is when the marketmoves up on higher volume than the previousday. Some investors call accumulation days "follow-through days" if they occur after an initialrally. A distribution day is a down day for themarket on higher volume. It's better that themarket retracts when volume is below average orlower than the previous day. Other indicators areadvances vs declines, up/down volume, the numberof stocks moving above their 200-day movingaverages, and the indexes breaking out abovecritical resistance levels. For more specificbenchmarks, consult with a financial analyst.
After you've confirmed that thegeneral market is strong, you shoulddrill down on which industry groupsare performing the best. has divided the universeof stocks into 192 industrygroups. A good start is to look at thetop 40 industry groups weekly, payingclose attention to which groups aresignificantly moving up in rank in themost recent 4-week period. It'sa good idea to confirm technicalanalysis of the stronger individualsectors to verify an uptrend and kickoff the overhead supply.
Begin drilling for stocks by evaluatingthe contents of the best industrygroups. There are a number of fundamental andtechnical factors that should be screened togenerate superior returns, including: earningsper share growth, pretax profit margin, relativeprice strength, return on equity (ROE), accumulation/distribution, future earnings estimates,quarterly sales, etc.
From that list of stocks that qualified in thescreening process, you should then take a look atthe stock chart. Generally, technical analysis,when combined with the fundamental strengthof a given company, increases the probability ofsuccess of any given investment. Look for stocksthat are above their 50-day moving averages,have increased volume as the stock value goesup, have decreased volume as the stock retracts,and have little overhead resistance.
Investors also have access to the reporting ofinstitutional sponsorship. Thus, investors candetermine which mutual funds own the stocks,how much the funds own, and how the fund isranked. Make note of a stock's institutionalsponsorship that increases quarterly, especially ifit increases at a rapid rate.
The more sponsorship a stock has, the better.The mutual fund industry has billions of dollarsand has to purchase stock in huge quantities,which takes weeks to enter a position, increasingthe demand for the stock.
The leaders of the emerging bull market willmost likely come out of the top industry groups.These leaders should have the highest appreciationover the bull market, and physician investorsshould gradually invest in these industrygroups. Finding the leaders in today's marketis quite a long and difficult process, but thereward should be well worth the effort.
is a private
affiliated with Sierra
Capital Planning in
northern California. He
runs a fee-based business
and a hedge fund
for qualified investors.
For more information,
call 877-467-8657 or
visit www.sierrainvestor.com. Christopher
Nezbeth contributed to