Investors may develop a bias toward prior market leaders, giving them false hope the stocks will return to their prior glory days. But it's best not to get married to previous highfliers just because they look like a bargain or start to climb back.
Four former IBD 50 names that had topped the elite list but no longer meet the stringent criteria include: Nvidia stock, Arista Networks, AppLovin and Dutch Bros. These names have fallen below their 10-week moving averages while institutions have unloaded shares. Time will tell if fund managers develop a new appetite for some beaten-down former leaders.
Investors may be tempted to buy these prior leaders as they rise and form new bases as the stock market improves. But as pointed out in Tuesday's IBD The Big Picture column, "some former leaders, especially those hit hard by institutional selling in recent weeks, will not go on to lead the next stock market uptrend."
These fallen angels would need to prove themselves by retaking their 10-week lines amid heavy institutional buying. But it's best to avoid the former favorites and look for new names to emerge once a general market downturn is over. Look for a follow-through day on the S&P 500 or Nasdaq composite to signal a stock market turnaround.
How To Know It's Time To Sell Your Favorite Stock
Seek out stocks with IBD Accumulation/Distribution Ratings of A or B, which indicate heavy or moderate institutional buying over the last 13 weeks.
In addition, winning stocks will have robust Relative Strength Ratings such as 85 or higher, and be first ones to rally in a new uptrend. Their relative strength lines will also be at or near highs.
Nvidia Stock Falls From Grace
Artificial intelligence giant Nvidia had been a Wall Street darling for years before it started trading sideways in June. Then in January, Nvidia stock got clobbered on potential competition from China's DeepSeek low-cost AI model.
Nvidia stock holds a dismal D- Accumulation/Distribution Rating. And its Relative Strength Rating has dropped to 47 from 89 four weeks ago, according to MarketSurge data.
Data center networking stock Arista Networks holds an A/D Rating of E and its RS Rating is a dismal 29. The stock is around 37% off its 52-week high reached in late January.
AppLovin gave back a more than 25% gain from a cup-without-handle base earnings break out, triggering a round trip sell signal. The mobile app technology stock tumbled further, following two negative reports about the company. Shares are around 43% off their February high.
Lastly, Dutch Bros gave back a 29% gain from an earnings gap-up in mid-February. The coffee chain stock has an A/D Rating of E.
IBD 50 Stocks To Watch
The IBD 50 has rotated away from artificial intelligence and tech names to biotech, China, insurance and gold stocks.
The accompanying table shows some recent names in the IBD 50 that are showing relative strength in the current market.
Follow Kimberley Koenig for more stock market news on X, the platform formerly known as Twitter, @IBD_KKoenig.
