Dow Looks Poised for a 5% Correction

Since the Dow Jones Industrial Average (DJINDICES: ^DJI  ) closed on August 2 at 15,658, it has fallen nine of the 11 trading days and lost 648 points, or 4.13%. Last week, the Dow had its worst week of the year, when it declined 2.23% after falling 1.48% the week before. The most likely cause of the drop since the start of August is the constant fear of when the Federal Reserve will begin tapering its $85 billion monthly bond-buying program.

During the course of the year, the markets historically decline 5% three times. Between May 28 and June 24, the Dow lost 4.86% during a time when interest rates began rising as investors grew concerned about the future of the Fed's stimulus programs and they were only calmed after Ben Bernanke publicly insisted that rates would stay the same for the foreseeable future. Well, now it seems some investors believe the foreseeable future came and went because interest rates are again rising and tapering talk is heating up once more.

With very little economic data or major earnings released today to distract investors, the Dow lost another 70 points, or 0.47%, and now sits at 15,010. But even on days when the market falls and we are in the midst of a correction, a few shining stars can usually still be seen within the index, and today was no different.

Shares of Intel (NASDAQ: INTC  ) rose 1.67%, making the chip manufacturer the best performer on the big board today. The move higher came after analysts at Piper Jaffray upgraded the stock from sell to neutral. Gus Richard and Jennifer Baxter believe that, although Intel will cerntainly face a number of headwinds in the coming months, the company is well positioned to benefit from what they consider to be an inevitable PC upgrade period when Microsoft stops providing tech support for Windows XP. According to the two analysts, somewhere between 150 million and 250 million new PCs will be upgraded starting next year. That will give Intel a nice 5% increase to revenue and should help the stock begin performing better.  

Boeing (NYSE: BA  ) was another big winner as shares rose 1.21%. The move came after a Reuters story broke that the company is leading its competition in winning a deal with the South Korean military to provide 60 fighter aircraft. The estimated deal is worth $7 billion and gives the company some work for its defense unit when the U.S. is cutting back on military spending.  

 Johnson & Johnson (NYSE: JNJ  ) also had a good day, with shares rising 1.21%. The company announced today that it has successfully completed its acquisition of Argon Pharmaceuticals. Argon was a privately held discovery and development pharmaceutical company that focuses on developing drugs to treat hormonally driven cancers. Johnson & Johnson believes that this acquisition will give it a better prostate cancer pipeline and a potentially best-in-class compound.  

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  • Report this Comment On August 19, 2013, at 9:35 PM, SSBN620 wrote:

    Keep your eyes on the swinging pendant and chant "The glass is half full. The glass is half full".

    Or, to put it another way, the difference between a pessimist and an optimist is that the pessimist looks both ways before crossing a one way street.

  • Report this Comment On August 19, 2013, at 9:54 PM, rotorhead1871 wrote:

    its already dropped about 5%....nice prediction.....

  • Report this Comment On August 19, 2013, at 9:56 PM, techy46 wrote:

    Try 10-15% correction once the FED cuts QE3 by $10 billion, the DEMS and REPS lock up on the budget and debt ceiling and Obama appoints Larry Summers to the Chairmen of the Board.

  • Report this Comment On August 20, 2013, at 12:23 AM, FoolSolo wrote:

    @techy46 - if that happens I'd be buying. I existed a few very profitable positions into the run-up via covered call options, anticipating the the market had to take a breather soon. I was expecting a bigger correction than 5%, precisely because of the points you stated.

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