Follow the Leader
Every bull market has leading stocks and sectors that steer both market rallies and selloffs. So how do investors identify leaders? A good sign of a market leader is that they are among the first stocks to rally from a bottom. These stocks also tend to trade in a “V” formation. They are also the first stocks to get hit on a selloff.

Buy on Declines
Cramer recommends using market declines as opportunities to buy leading stocks on the cheap. However, investors need to be able to recognized when a stock’s decline is caused merely by investors’ panic over a minor piece of news that doesn’t relate to the stock’s fundamentals, It is important to be able to look beyond the headlines and the market hype to see that a bull market correction is an opportunity to buy and not a reason to give up hope.

Watch out for Fund Managers
All stocks are impacted by the behavior of hedge fund managers which often have more influence on a stock’s performance than the company’s underlying fundamentals. This phenomenon is even more pronounced with market leaders. Fund managers can often drive up the price of stocks by “panic buying”. Fund managers often panic when they are underinvested, on the sidelines or even short a stock. When they see the market heading up, they often pile in all at once and buy, especially when a rally hits 10%.

Breadth of Rally
Indexes like the S&P 500 and Dow Jones only tell part of the story; investors need to look for breadth in rallies if they want the whole truth. A ‘thin” rally is led by only a few stocks or a couple of sectors and does not give an accurate picture of the market as a whole. The rally in the summer of 2007 before the long period of decline was led only by commodities and was “thin”. The rally didn’t accurately represent what was really going on in the stock market. While the spring of 2009 rally looked “thin” at first glance, since it was led only by semiconductors, banks and oil stocks, the rally has continued and spread out to reach other sectors. It now appears to have become a broad market rally and has accurately signaled better times.

Technical Difficulties
Technical indicators such as oscillators and put/call ratios can indicate the direction of stocks in normal markets. However, in unusual times like the market crash of 2008-09, using technical analysis can actually cause investors to lose money. Technical indicators often tell investors when a stock “cannot” go lower or go higher, but in the decline of 2008, stocks defied technical wisdom and kept dropping lower and lower.

Technical analysis can also prove faulty during market rallies. Those investors who paid too much attention to technical data in the spring of 2009 and sold in April ended up missing the huge gains that followed. So in unusual markets, Cramer recommends against depending on technical analysis.

Bull Market, Meet the Matador
Of course every bull market must come to an end. The important thing for investors to know is what the most common bull market killers are. Jim Cramer believes that inflation is the “serial killer of bull markets”. As long as the Federal Reserve keeps interest rates low and is actively trying to prevent inflation, the bull market can continue. However, once the Fed starts tightening…watch out.

Another indication of end of a bull market rally is super-extreme valuations. Once investors start ignoring fundamentals when valuing a stock and companies are measured by their page views or takeover values, that’s a strong sign that investors should run for cover.

According to Cramer, no bull market can last with sustained unemployment over 10%. While “streamlining” by getting rid of employees can bring a company short-term gains, the company can’t continue to outperform the market by simply relying on reducing jobs as a regular cost-cutting measure.

Finally, the decline of leading stocks or sectors will bring the bull market down as well. If a market rally is led by a single sector, when that sector falls that market generally becomes a bear market.