While it's true many top performing stocks have outstanding fundamentals ahead of major price moves, emerging stock market leaders are also often leading price performers in their industry groups.
Remember, consistent success in the stock market isn't about buying widely held names on sale in the stock market. Rather, it's about targeting the leading price performers in a group. The best way to do this is with Investor's Business Daily's Relative Price Strength Rating.
Stocks are ranked on a scale of 1-99 with 99 being best. A stock with an RS Rating of 90 means it's outperformed 90% of the stocks in IBD's database based on 12-month price performance. The latest three months of price performance get a heavier weighting.
While your search should generally be focused on stocks with RS Ratings of 80 or higher, there are some nuances to the rating to keep in mind. For starters, stocks with high RS Ratings aren't always buy candidates.
Because the rating looks at price performance over the past 12 months, a stock can start to fall. But a 15% decline off a high won't have much effect on the rating. In fact, a stock's technical picture can deteriorate quickly, even though it maintains a healthy RS Rating.
Stock Market Leaders
Take GE Vernova as a recent example. The stock plunged through its 50-day moving average Tuesday. But through Wednesday, GE Vernova's RS Rating was still strong at 96.
The reason is the stock was still up a whopping 200% over the past 12 months. GE Vernova remains a nicely profitable position in the Leaderboard model portfolio after joining the Leaders list on May 20.
Palantir Technologies, meanwhile, has come under selling pressure as the enterprise software leader tests its 10-week moving average.
After a pullback of 18.5% over nearly four weeks through Wednesday, the stock's RS Rating was still high at 98, helped by a 12-month gain of just over 300%.
Other Stocks To Watch
As the accompanying table of IBD Big Cap 20 leaders shows, stocks can maintain high RS Ratings and also be in good technical setups. The Big Cap 20 highlights the leading large-cap names in the stock market.
Electronics contract manufacturer Celestica is in a four-week consolidation after a nice bounce off its 10-week moving average. Amid mixed fundamentals in the group, Celestica is in a new growth phase thanks to strong demand for data center hardware.
Astera Labs, a big player in the artificial intelligence chip space along with group peers Nvidia and Credo Technology, has been holding support at its 21-day while maintaining a healthy RS Rating of 98.
Avoid the pitfall of targeting low RS stocks that are forming bases and near buy points. Sluggish price performance over the past 12 months generally means a breakout could be sluggish as well.
Follow Ken Shreve on X @IBD_KShreve for more stock market analysis and insight.
