Every leading industry group or sector has a leading stock in it. These are the stocks that should be followed and most often traded. The leading stock in the industry group will usually have the best volume and the best chart pattern when compared to its peers. For example, J.P. Morgan Chase & Co (JPM) is the leading stock when it comes to the big banks. This stock can almost be used as a large bank ETF. It is clearly the leader in the sector as other large bank stocks will usually follow the price action in JPM.
Sometimes there can be two or three leading stocks in an industry group. In this case you will need to track all three to see if one becomes more dominant than the other. A good example of this is Apple Inc (AAPL) and Alphabet Inc (GOOG). Sometimes these stocks will flip flop from leadership positions in the market. Currently, GOOG is leading AAPL as it is making new all time highs and AAPL stock is yet to climb above its October high. In this case, GOOG stock is showing leadership and should be monitored more closely.
Multiple leadership can also occur in other industry groups such as the semiconductors. At this time, leading semiconductor stocks such as Nvidia Corp (NVDA), Advanced Micro Devices Inc (AMD) and Qualcomm Inc (QCOM) are the leaders. Obviously, since QCOM stock is at a new all time high this is the one name to follow and track most closely. If this stock starts to stall out or has a major reversal day it could spell trouble for the entire semiconductor sector. This recently occurred in the solar stocks. JinkoSolar Holding Co Ltd (JKS) was showing leadership and then staged a massive reversal day on October 21st, 2020. This caused a domino effect in most of the other leading solar stocks as they all started to come under distribution.
Simply put, always follow the leading stock in the sector. It is the leading stocks in the industry group that holds the market sentiment for the entire sector. When leadership changes you must recognize it and change with it.
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