10 Stocks to Snag in a Correction

Is this the correction that any investor with cash on the sidelines has been waiting for? If so, how do we decide what to buy and when to buy it?

I think the answer to the first of those questions is, not yet. We're in the early stages of something that could be just a dip but looks like a much sharper move downward. The trouble is, there's so much air under some of the stocks that moved up most, it's hard to figure out where a correction might end once it builds momentum.

If the answer to the first question really is "not yet," the best way to develop and execute a buy list is to divide your stock wish list into sections, each with its own market conditions that would trigger a buy. So after climbing out on a limb to give you my take on where the market is headed, I'll begin sawing it off by giving you my list of 10 stocks I'm looking to buy and the market conditions that would trigger those purchases.

To know where stocks stand now, break down the market into at least three segments.

Tech Stocks Have the Most to Give Up

First, there's the tech-heavy Nasdaq Composite, which through March 16 was down 9.7% from Jan. 26. The Nasdaq climbed farthest and fastest in 2003, up 49.1% for the year, and it now has the farthest to fall to find solid footing. In its decline so far, the Nasdaq fell through major technical support at 2000, 1980 and 1970.

But the charts show a distinct possibility that this correction won't stop until it hits either of these two levels:

• The bottom of the October-December trading range at 1880. That's a strong level of support because the 200-day moving average sits nearby at 1876.
  
• The even more important technical level at 1809. This would represent a 38% retracement for the March 2003-January 2004 rally.

Many corrections follow a pattern of taking back 38% or 50% of the gain from the prior rally. A common pattern, you could say, is for the market to move up three feet, then give back one.

That would make this current pullback a typical and orderly correction after a huge rally. A drop all the way back to 1809 would be a 16% correction from the Jan. 26 high.

And the March 16 close of 1944 would mark just about the halfway point in that decline, with the Nasdaq looking at another 7% drop.