What constitutes stock market leadership? Can leadership be systematically determined? Is the market currently undergoing a leadership transition?

We’ve all experienced leadership- like AAPL dragging up the whole market during the QE period. AAPL and the whole FANG complex has been the leadership that has spilled over into the software group, and the technology sector as a whole.

While the SPX is making new highs, several of the FANG members have not been leading the general market higher. AAPL has a precarious situation technically, with a reversal looking more likely the longer it drifts down to $120.

NFLX is at the bottom of its range, AMZN had a failed break out to new ATH’s at $3,500, and FB, MSFT, and GOOG are only half the team holding in an uptrend.

Because we lost half the FANGs, the operating assumption should be that the market has lost its main leadership. That is why it is hard to buy any breakouts- most have no followthrough. There is no leadership. Institutions have ceased to buy like they have been since the Trump election night rally took off in 2016.

Cyclicals are deemed by some to be new leaders- but we lacked the most important element of a leadership change to confidently say cyclicals/ energy/ commodities are the new leadership: a market sell off.

From my research, it is apparent that any major leadership change happens from a modest correction- say around 10% or more, and after a prolonged bear market period, say 3 months or more.

We have had neither of those events. That is why we’ve got to operate under the assumption that we are still in leadership faltering mode. Unless AAPL can shakeout and move up, and take the QQQ’s with it, then what 1/2 the FANG group is saying is that the general market is heading into a very risky period this year.

Any new “leadership” should be considered a laggard group. We have had 4 years of rallying interrupted only by COVID crash, and this last rally since April of 2020 feels more like the final blow off top of the big rally that started in 2016 than the first leg of a sustainable rally.

A worst case scenario is that this is the blow off top of the rally that started in 2009. But there is too now way to determine that 2010ish wasn’t the start of a 20 year move up. There is some evidence for this, but equal evidence that 2020 could be the start of 10 year consolidation period for the market.

I’m leaning towards the scenario of 10 more years left in this bull run simply due to the fact that the Fed is not considering raising rates, and all my research suggests that virtually every decline of lasting magnitude in markets is caused by a period of Fed raising rates or some form of defecto monetary tightening.

Until we get a decent correction, we await the new market leadership.