During a market correction, your number one priority is to protect capital. So most investors should limit their exposer to this downward trend.
Some, cash out and wait. This is perfectly acceptable. Cash is king and it takes money to make money.
Some, play the inverse trend to “balance” their portfolio or “hedge” the market.
Some rely on stop loses to limit their losses to help “keep” their strongest stocks. These, in theory are the stocks in their portfolio which hold up better than the rest and are worth keeping.
Some, also look for new stocks to watch. These new stocks are ones most likely not in their current portfolio but are holding up well in this terrible market. Often, according to IBD, stocks holding up well in a market in correction are first to break out once the market rebounds.
Going back more than three years and not including the current correction, the Nasdaq has had corrections of about 19%, 18%, 10% (rounded up) and 11%.
The deeper corrections lasted six to 10 weeks, while the shallower corrections ran four to six weeks. Traditionally a correction is defined as a pullback of 10% or more, and a bear market 20% or more. The current correction has burned through a lot of capital in just two weeks. The quick decline might suggest that the battle between the bears and the bulls has further to go. Volatility is likely to remain for a while.
Yet, the individual investor should not get locked into a prediction. Stay flexible and be ready to buy a stock if a follow-through day develops.
A follow-through day involves a big index gain in rising volume on the fourth day or later of an attempted rally.
Friday’s action constituted Day 1 of an attempted rally. The indexes have to stay above their intraday lows in order for the count to continue.
So I ran a screen looking for stocks which have fallen less than the three major indexes, have positive EPS and Sales ratios, and are finding support and or above the common trend lines (20, 50, 200 MDA).
And came up with this list of stocks.
|COLM||Columbia Sportswear Company||Consumer Goods||Textile – Apparel Clothing||5.42B||27.5||76.7|
|CUDA||Barracuda Networks, Inc.||Technology||Communication Equipment||1.48B||98.71||27.54|
|EL||The Estee Lauder Companies Inc.||Consumer Goods||Personal Products||49.68B||36.43||134.75|
|EZPW||EZCORP, Inc.||Financial||Credit Services||742.84M||18.87||13.15|
|FTNT||Fortinet, Inc.||Technology||Application Software||8.26B||97.16||46.54|
|GFN||General Finance Corporation||Services||Rental & Leasing Services||194.18M||–||7.4|
|INST||Instructure, Inc.||Technology||Application Software||1.10B||–||36.75|
|INVA||Innoviva, Inc.||Technology||Application Software||1.72B||19.51||15.43|
|KTEC||Key Technology, Inc.||Industrial Goods||Diversified Machinery||172.63M||42.83||26.64|
|MBUU||Malibu Boats, Inc.||Consumer Goods||Recreational Goods, Other||703.07M||20||33.4|
|MC||Moelis & Company||Financial||Asset Management||2.83B||24.9||52.05|
|NEWR||New Relic, Inc.||Technology||Business Software & Services||3.58B||–||64.38|
|PERY||Perry Ellis International, Inc.||Consumer Goods||Textile – Apparel Clothing||417.00M||15.48||26.21|
|SKX||Skechers U.S.A., Inc.||Consumer Goods||Textile – Apparel Footwear & Accessories||6.57B||25.41||41.06|
|TSG||The Stars Group Inc.||Services||Gaming Activities||3.75B||19.9||25.45|
These are not necessarily stocks to buy right now. After all, the market is still in correction. However, this correction will not last forever (watch for a confirmation follow-thru signal or for price trends to close above moving averages signaling a potential return to a bull market). When the market does reverse back up, there will be bargains out there to purchase. So it is prudent to build and maintain your watch lists to be ready for a recovery.