Why Following the Leading Growth Stocks in Every Market Cycle Matters

Tracking growth stocks isn’t just about identifying trading opportunities – it’s about understanding the overall market’s health. Leading growth stocks act as a compass, showing where the market is headed and what industries are driving innovation and growth.

When top-performing stocks begin breaking out during a new cycle, it’s often a sign of stabilization and an emerging uptrend. Conversely, when those same stocks start to weaken or roll over, it’s an early warning that the market may be entering a downturn.

A True Market Leader (TML) is a stock that dominates its industry and consistently outperforms its competitors while setting the pace for innovation and growth. A TML is a stock that doesn’t just succeed in its industry—it sets the standard.

Nvidia (NVDA) is a prime example of a true market leader. By pioneering advancements in Artificial Intelligence chips, Nvidia has carved out a competitive edge that drives consistent growth in both revenue and earnings. Innovation, consistent fundamental growth, and industry dominance are what make a stock a TML

Jesse Livermore dedicated an entire chapter in his book “How To Trade In Stocks” to the importance of following the leaders. He states, “Do not have an interest in too many stocks at one time. It is easier to watch a few than many.” He then recommends, “Confine your studies of movements to the prominent stocks of the day.”

What Is a Growth Stock?

Growth stocks represent companies that are expanding their profits, revenue, and market share at rates much higher than the overall market. These are often companies at the forefront of innovation, introducing new products or services that change how we live, work, and interact.

When a new product changes how we live and work, the stock price will rise when more traders begin to understand the value of their innovation.

Companies pioneering new methods to improve human life often emerge as top investment prospects with the potential for significant returns. Often associated with their new and innovative breakthroughs, Growth Stocks are poised to thrive.

Sectors Where Growth Stocks Thrive

Certain industries are natural breeding grounds for growth stocks due to their fast-paced innovation and high demand for cutting-edge products or services. Growth stocks are most commonly found in:

Why Fundamentals Are Critical

Strong fundamentals are the foundation of every successful growth stock. While price action and technical indicators tell you what is happening, a company’s fundamentals reveal why it’s happening.

As companies continue to develop their innovative technologies, their Earnings and Sales will continue to grow and subsequently push the stock’s price higher.

When a company delivers 30%+ earnings-per-share (EPS) growth quarter after quarter, it shows they’re thriving. This growth attracts institutional investors, which drives demand for the stock and pushes its price higher.

Sales growth is another critical metric because it demonstrates growing demand for a company’s products or services. Look for businesses that post 30%+ quarterly sales growth, as this indicates the company’s products are resonating with customers and gaining market share.

Leaders in the current market cycle with strong brand recognition hold a substantial portion of the market share. Their competitive advantages possess unique resources that make it difficult for competitors to replicate.

To identify fundamentally strong growth stocks, focus on these metrics:

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When a stock shows consistent improvement in these areas, it’s more likely to outperform in the market.

Why You Should Follow the Leaders

Growth stocks that lead the market provide crucial insights into the market’s current health and future direction. They’re often the first stocks to break out during a new uptrend, signaling that the broader market may be recovering from a consolidation period.

On the other hand, when leading stocks begin to lose momentum or break down, it’s an early warning sign that the market could weaken after a prolonged rally. By watching the performance of market leaders, you can stay ahead of major market shifts and adjust your strategy accordingly.

How Leading Stocks Outperform

One of the key benefits of tracking growth stocks is their potential to outperform the broader market. During a typical 10% market rally, leading growth stocks often generate returns of 100% or more.

For instance, SMCI became a standout growth stock in 2024, leveraging its strength during a 300% advance in 8 weeks when the market had a 27% rally.

Similarly, TSLA delivered massive returns during its rise as a market leader in 2020, showcasing how growth stocks can amplify investor returns far beyond market averages.

How Leaders Warn of Market Shifts

Leading growth stocks aren’t just indicators of uptrends; they also signal when the market is at risk of a downturn. Near the end of an uptrend, these stocks are often the first to show signs of weakness.

For example, Abercrombie & Fitch Co. (ANF) began losing momentum in 2023-2024 after a strong run. This decline signaled a broader slowdown, warning investors to prepare for potential market weakness.

How to Screen for Leadership Stocks

Finding the next market leader doesn’t have to be complicated. Using tools like Deepvue Screener Presets, you can identify stocks with leadership qualities quickly and efficiently.

The Deepvue Leaders Screener Preset identifies stocks with enough liquidity for institutional interest, increasing earnings and sales, and are among the highest ranking for relative strength.

Routinely utilize other Screener Presets to cycle through stocks that display leadership characteristics.

How to Build and Maintain Watchlists

Creating and maintaining watchlists is key to staying organized and focused in your trading or investing strategy. With tools like Deepvue Target Lists, you can systematically filter, refine, and monitor stocks.

1. Universe list: Start with a broad list of liquid stocks filtering out low-dollar-volume stocks while focusing on those with strong liquidity. Routinely Look for stocks near highs and common themes to uncover potential leadership.
   
2. Seasonal list: Dive into the fundamentals of every stock and uncover growing earnings and sales. Look for emerging industry trends in the strongest technically setup stocks
   
3. Leadership focus list: Refine your focus highlighting stocks consolidating near highs or with accumulation near support areas.
   Place more emphasis on stocks accelerating earnings and sales.
   
4. Daily focus list: Trim your list to the top 10 strongest stocks. Keep this list tight with only the top 10 best leadership stocks in tradable ranges.

Key Takeaways on Growth Stocks and Market Leadership

Leading Growth Stocks serve as an indicator of overall market health, signaling a new emerging uptrend or the nearing end of a prolonged uptrend.

Growth Stocks are best recognized as stocks that outperform the market during uptrends. If an index advances 15% the leading stocks may increase over 150% or more.

Look for stocks with robust quarterly and yearly earnings and sales growth. Identify market themes to find companies dominating their respective industries with strong brand recognition and competitive advantages.

Routinely screen for potential leadership stocks by looking for stocks making new all-time highs with strong relative strength.

Regularly Maintain a series of watchlists to funnel your focus from a wide Universe of liquid stocks down to the top 10 strongest stocks of the current market cycle.