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Stock Price Maturation Cycle

Stan Weinstein’s insights provide a strategic roadmap for navigating the complexities of the stock market, particularly during bear markets. His analysis reveals that while significant gains often occur early in bull markets, the best opportunities emerge during bear market corrections. This is the time to roll up our sleeves, conduct thorough research, and identify emerging leaders.

Identifying leading stocks in a bear market requires a keen understanding of market dynamics. Weinstein highlights that over 90% of the biggest winners emerge from market corrections, with many top-performing stocks bottoming before the broader market.

Stock market dynamics during bull and bear markets

Fundamentally strong stocks during bear market corrections often exhibit strong earnings growth, innovative products or services, or positive industry changes. On the technical side, true market leaders demonstrate robust relative price strength, outperforming despite the prevailing bearish sentiment. These stocks exhibit resilience and quickly rebound to new highs.

In our analysis, we integrate strong fundamentals with technical indicators to identify potential market leaders. By focusing on stocks with a compelling story and a strong chart “Good Story, Good Chart”, we aim to pinpoint opportunities that make their lows before the market averages bottom out.

For those interested in the philosophy, we recommend diving deeper into the subject by reading articles on our stock market information partner’s site (Investor’s Business Daily) or, if you want to delve even deeper, search for stocks yourself via MarketSurge.

As we navigate the current market landscape, subsectors like semiconductors and oil & gas present promising opportunities. Recent earnings results from companies like Nvidia or Broadcom indicate the emergence of new leading sectors, paving the way for potential investment prospects.

It’s essential to remember that while history doesn’t repeat itself, it often rhymes. We can see this with examples like ARKK and the South Sea Stock bubble, where similar market dynamics and patterns emerge, offering valuable insights for today’s investors

Isaac Newton and the South Sea Bubble, 1718–1721

Source: Marc Faber

ARK Innovation ETF (ARKK)

Source: TradingView

You see, these charts are 300 years apart, and yet it’s basically the same thing. After all, history doesn’t repeat itself, but it often rhymes

Stock Maturation Cycle

Stan Weinstein’s Stage Analysis offers a straightforward yet powerful framework for understanding the lifecycle of a stock and pinpointing opportune moments for investment. Mastering Stage Analysis equips you with invaluable insights into your portfolio. Using Stage Analysis, it becomes clear that stocks typically progress through four distinct stages:

Stage One (Base): This phase marks the stock’s recovery from a significant decline as it forms a base, establishing a foundation for potential growth. Investors should wait for the 200-day moving average to approach the base before considering entry.

Stage Two (Advancing): As the stock breaks out of the base and rises above the 200-day moving average, it enters the advancing phase, offering the most promising growth potential. Minor corrections may occur, but a healthy advance maintains support above the rising moving average.

Stage Three (Distribution): After reaching its peak price, the stock moves sideways in the distribution phase, signaling a loss of momentum. While positive news may surface, the stock no longer advances, indicating a transition to the declining phase.

Stage Four (Declining): In this final stage, the stock breaks below support and the 200-day moving average, marking the culmination of its cycle. Investors should prepare to sell as further decline is expected.

For anyone interested in the theme, we recommend diving deeper into the theme by reading “Profiting in Bull and Bear Markets” by Stan Weinstein.

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