How to Identify Early Leaders in a Bull Market

Some stocks will decline first, form a bottom, and reach their lowest point before other stocks do—these stocks will become the early leaders in a bull market.

Other stocks will break through previous years’ highs or recent peaks earlier than the rest, and these will also emerge as early leaders in a bull market.

In every bear market, there are always leading decliners or stocks that rally ahead of others and peak earlier. For example, in 1931, while most stocks were still falling, these stocks began forming a bottom and accumulating upward momentum, eventually leading the rally in 1932 and 1933.

Example 1: American Commercial Alcohol

• April 1929: Peak price at $90.

• October 1930: Bottomed at $5.

• 1932: Formed a bottom eight months before the broader market.
  During its basing phase, the stock exhibited narrow price fluctuations and strong accumulation. In May 1932, while other stocks were hitting new lows, it broke through all prior highs, signaling a strong uptrend.

• September 1932: Peaked at $27.

• February 1933: Pulled back to $13, still 2% above the previous bottom.

• May 1933: Surpassed the 1932 high.

• July 1933: Rose to $90, matching the 1929 peak but failing to break through—forming a double top. At this point, long positions should be sold, and the stock should be shorted with a stop-loss 3 points above the 1929 high.

• July 1934: Fell to $20.75.

• December 1934: Rebounded to $34.75.

• June 1935: Bottomed at $22.50, $1.75 higher than the previous low, confirming support.

• After trading between $23 and $28 for seven months, it broke above $34.75 in November 1935. A sustained uptrend would only be confirmed if the price rose 3 points above this level.
  
  

Example 2: American Smelting
Another early bull market leader, this stock showed significantly stronger momentum than others.

• April 1929: Peaked at $72.875.

• September 1931: Bottomed at $12.375.

• November 1931: Rebounded to $26.

• June 1932: Fell to $10, its all-time low.