10 Stocks to Snag in a Correction

Unfortunately, however, the technology rally that began in March 2003 was so fast and so steep that there's a chance that any decline will shoot right through that support.

You can see the problem if you look at specific tech stocks. Intel(INTC Quote) fell to $27.70 on March 8. That was below its major technical support at the 200-day moving average. Now it's hard to find a price where the stock spent any amount of time building a base above $20, a price the stock last saw in June 2003.

The Nasdaq could easily wind up retracing 50% of the rally since March 2003, which would put it near 1647, down about 24% from its January high.

Basic Materials Not as Vulnerable

Second, there's the Dow Jones Industrial Average, with its big dose of basic materials stocks, such as Alcoa(AA Quote). As of March 16, the Dow was down 5.1% from its 52-week high on Feb. 11. That's about half the drop of the Nasdaq from its peak.

The Dow looks to have solid support first at 9760, the 200-day moving average. That level is another 5% lower than the March 11 close. The Dow has second support at 9500, and finally an extremely strong base at 9000. The 9000 level would represent another 11% from here, and a total drop from the Feb. 11 high of 16%.

I think that's the worst case for the Dow in this correction. If you look at the charts of individual Dow stocks, you can see what makes this part of the market different from the technology sector.

Alcoa is still well above support at the 200-day moving average of $30.78, and the stock then has additional strong support at $28 and $25. According to technical analysis, this stock won't go into free-fall as some technology stocks threaten to do with this much strong support at so many levels within reasonable distance of this price.

It looks like the basic materials and cyclical stocks that led the Dow Jones Industrial Average upward in this rally and that performed so strongly in 2003 are likely to fall only two-thirds as far -- a 16% decline vs. a 24% retreat -- as the stocks in the technology sector.

Consumer Stocks Have Hidden Strengths

Last, there's the S&P 500, which at the March 16 close was down 4.1% from its Feb. 12 high of 1158. The momentum on the S&P 500 is to the downside, just as it is with the other major indexes. But it shows very strong technical support not too far below current levels at 1050 (the 200-day-moving average) and at 1000. So the S&P 500 has a good chance of seeing its retreat limited to a further 5% to 10% decline from the March 16 close. If the index fell to 1000, the total drop from the Feb. 11 high would be about 14%.