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Dow Jones Futures: What To Do In A Stock Market Correction

Dow Jones futures fell modestly Sunday evening, along with S&P 500 futures and Nasdaq futures. A stock market correction began last week due to heavy selling in the major averages and leading stocks. In a stock market correction, investors should largely stay on the sidelines but remain engaged and build their watch lists. Pay attention to top stocks that are holding up well, such as Apple (AAPL), Microsoft (MSFT), Ulta Beauty (ULTA), UnitedHealth (UNH), Boston Scientific (BSX) and O’Reilly Automotive (ORLY).




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All of these are on the Relative Strength At New High list except for UnitedHealth (UNH), whose RS line is just below a record high. The RS line tracks a stock’s performance vs. the S&P 500 index. UnitedHealth reports third-quarter earnings this week, the first of the highly rated Medical-Managed Care group. UnitedHealth, Apple stock and Microsoft stock are all Dow Jones components.

Separately, Harris Corp. (HRS) and L3 Technologies (LLL) will merge, forging a U.S. defense contractor specializing in communications and electronics. L3 Harris Technologies has a current combined market value of about $33.5 billion. Harris will pay 1.3 share for every L3 share, currently worth $201.33, a 2.8% premium to L3’s Friday close.

Dow Jones Futures Today

Dow Jones futures fell 0.1% vs. fair value. S&P 500 futures retreated 0.2%. Nasdaq 100 futures lost 0.3%.

President Donald Trump said in an interview on “60 Minutes” that he “might” impose additional tariffs on China. Trump has threatened to escalate the China trade war further several times.

Crude oil futures rose as Saudi Arabia vowed to retaliation vs. any sanctions. President  Trump said he could take action vs. the kingdom over the disappearance of a leading Saudi critic who entered a Saudi consulate in Turkey. The kingdom noted its “vital” role in the global economy.

Remember that Dow futures and other overnight action don’t necessarily translate in actual trading in the next regular session. Volatility has picked up in regular sessions and overnight trading as the stock market correction kicked in.

What Stock Investors Should Do In A Market Correction

For a confirmed stock market uptrend, the major averages must rise over several days, with at least some strong gains in heavy volume. Friday’s rally was positive. But one good day isn’t enough to end a stock market correction. Many of history’s greatest percentage gains have come in down markets.

So far in October, 194 of the 197 industry groups that IBD tracks has lost ground. Many top groups and sectors have suffered major losses.

Follow the market via the action of the major averages and leading stocks. IBD’s market analysis, including Stock Market Today articles and The Big Picture, will keep you in sync with the S&P 500 index, Dow Jones industrial average and Nasdaq composite as well as top stocks and groups.

Don’t fight the market. A stock market correction is a time to sell and move to the sidelines.

If you insist on staying invested, you should probably take at least partial profits. If a stock falls 7% to 8% below your buy point, just sell. Don’t let stocks that had run up 10% or more turn into losers. If you get out and a stock bounces back, you’ll get another chance to buy — or you’ll have the funds for another quality stock.

Fund Investing In A Stock Market Correction

The broad market eventually will recover. So for diversified mutual funds and ETFs, long-term investors can use stock market corrections to add to holdings.

However, fund investors can use market timing to limit losses now and take advantage of the next market uptrend. The ETF Market Strategy uses the market direction in IBD’s Market Pulse feature to determine when to buy and sell a broad stock index ETF like PowerShares QQQ (QQQ).

Build Your Stock Watch List

When a market uptrend clearly resumes — this week or months down the road — be ready. The stock market can turn quickly. The first leading stocks that break out often turn out to be the rally’s big winners.

So stay engaged now and build a watch list. Buying right solves most of your holding and selling problems.

Look for top stocks with strong and rising relative strength lines. The RS line tracks a stock’s performance vs. the S&P 500 index. If the stock market corrects or moves sideways, these names may set up in bullish bases and be leaders in the next uptrend.

Apple, Ulta Beauty, Boston Scientific and O’Reilly Automotive all closed Friday above their 50-day moving averages, while Microsoft and UnitedHealth rallied to slightly below that key level.

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