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.

Salesforce.com (CRM: 123.80 +0.81%)
Salesforce.com rose 16.2% after delivering better than expecting quarterly results yesterday. The stock also benefitted from the Cramer effect as Mr. Cramer interviewed Salesforce.com CEO Marc Benioff on Thursday nights show. Mr. Benioff was very confident that CRM will improve dramatically as the economy begins to recover. Cramer was very bullish on the stock as it was one of the rare stocks delivering a “double play” by beating earnings estimates by increasing their revenues rather than just cost cutting. Cramer recommends investors buy the stock and believes it will hit at least $70.

Triple-S Management (GTS: 23.73 +6.65%)
For the second day in a row, Cramer talked about Wellpoint (WLP: 64.83 -0.26%) and Triple-S Management. While Wellpoint rose only 0.8% today, Triple-S shares jumped 8.4% on the Cramer buy recommendation. Mr. Cramer believes that healthcare stocks will benefit as multiple expand and sees big potential in these HMO stocks. “We’ve been positive about this group since it became clear that the agenda’s stumbling, now it’s time to go pedal to the metal on this beaten down sector,” says Cramer.

Shaw Group (SHAW: 29.76 -1.26%)
Shaw Group CEO Jim Bernhard was also interviewed by Mr. Cramer on Thursday’s show. Mr. Cramer sees the stock as a great play on nuclear energy and believes the Obama administration is looking more favorable on the concept of nuclear energy. While the company delivered disappointing earnings last quarter, Cramer believes the stock is cheap and will see upside in the future.

Other Cramer stock picks:

Whirlpool (WHR: 70.20 -0.71%) rose 4.8% – Cramer believes the stock along with Sears Holdings (SHLD: 48.80 +3.17%) could benefit from the governments $300 million appliance rebate program.

Netflix (NFLX: 124.00 -3.03%) rose only 0.3% – Cramer recommended selling the stock.

Coinstar Group (CSTR: 57.37 -0.28%) rose 1.1% – Cramer recommended buying CSTR as a hedge against selling Netflix.

Adobe Systems (ADBE: 32.10 -0.56%), Southwestern Energy (SWN: 32.93 +1.35%) and Ultra Petroleum (UPL: 23.97 -1.24%) all dropped by over 2% today despite bullish comments yesterday by Jim Cramer on his Mad Money show. 

However, Mr. Cramer’s bearish picks performed quite well today. Topping the list would be THQ’s (THQI: 0.6114 +0.23%) more than 5% decline said he wouldn’t touch the stock or the gaming industry. 

Exxon Mobil (XOM: 85.32 -0.64%) and Merck (MRCK: 0.00 N/A) also dropped after Cramer expressed bearish sentiment about both stocks. However, Johnson Controls (JCI: 32.50 -1.52%) did manage to eke out a weak gain after Cramer endorsed the stock as “the best of a really bad neighborhood”.