Five Sectors That Are Fighting the Correction

The recent downturn has been broad-based and indiscriminate. Clearly there are forces at work that believe prices will be much lower than current levels in the weeks ahead. But a few sectors appear to be fighting the tide and turning up against the downward pressure. Today I'll look at five of them.

This decline has been noticeably different from others we've experienced in the last six months. For example, volume has been rising with each downtick, reversing the bull trend of declining volume we saw on previous dips. This type of price action is classic behavior in an intermediate correction, as opposed to a brief pullback.

Prior selloffs this year also featured waves of sector rotation. In other words, money stayed in the market and was put to work in groups that had lagged the heaviest hitters. However, this time around it appears that cash is moving to the sidelines, rather than into new positions. This is another common trait of a genuine corrective move in the market.

But there's still money to be made on the long side if you know where to look. We've entered a stock-picker's market, and cash needs to be carefully applied to avoid nasty surprises. But no one said it would be easy to beat the averages in 2003.

This first sector is not for everyone. If you're a socially conscious investor or just hate the smell of smoke, buying tobacco stocks may not be a good idea for you. But if your main concern is making money, this could be a good time for the foul weed. Sector giant Altria Group (MO - commentary - Cramer's Take) has been pushing higher, and many of its competitors are following suit.

My favorite pick in the group is UST (UST - commentary - Cramer's Take). The stock is recovering after a three-month correction that gave back about half the gains of its spring rally. It has popped back above its key 50-day moving average and is trying to base around $34. The next step would be a test of its 52-week high at $38.

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At time of publication, Farley was long Rite Aid, though positions can change at any time.

Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback and invites you to send it to [e-mail]. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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