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Aug. 3, 2016, 11:11 a.m. EDT

Investors shouldn’t fear this pullback, they should embrace it

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About Kevin Marder

Kevin Marder is a guest columnist and a co-founder of MarketWatch. He is principal of Marder Investment Advisors Corp. and a contributor to The Gilmo Report. Previously, he served as chief market strategist for Ladenburg Thalmann Co. and developed institutional fixed-income risk management software for Capital Management Sciences.

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By Kevin Marder


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Concerted selling in the Nasdaq Composite reared its head for the first time in five weeks Tuesday, with most market participants little fazed by the proceedings. Crude oil, once again below $40, poses an obstacle for a further move forward.

If this is the beginning of a 3%-5% Nasdaq reaction, or something more, the question becomes how far down will a retracement go. A good rule of thumb says that a normal retracement of an advance is between one-third and two-thirds of the advance.

This roughly coincides with the 38.2% and 61.8% pullback levels related to Fibonacci price retracements. The Nasdaq chart below shows that the 38.2% level rests just below the April and June highs which were widely watched pivot points before being taken out.

For a larger chart, please click here .

Chart created using TradeStation . ©TradeStation Technologies, 2001-2016. All rights reserved.

A pullback in the general market would give some of the overheated growth glamours a chance to digest their recent run-ups. In so doing, the resulting pullbacks may provide intermediate-term speculators with fresh entrance points.

A name like Yirendai /zigman2/quotes/201030587/composite YRD -2.13% , the Chinese consumer-finance marketplace operator, is a good example. The recent new issue bolted 76% in just three weeks, leaving it materially extended above its most recent support area.

For a larger chart, please click here .

Chart created using MarketSmith . ©2016 MarketSmith Incorporated. All rights reserved.

Other leaders include Alphabet /zigman2/quotes/202490156/composite GOOGL -1.07% , Lumentum /zigman2/quotes/204419752/composite LITE -0.68% , Penumbra /zigman2/quotes/203831055/composite PEN -1.99% , Paycom Software /zigman2/quotes/208108773/composite PAYC -4.96% , Theravance Biopharma /zigman2/quotes/204752752/composite TBPH -0.12% , Veeva Systems /zigman2/quotes/202850210/composite VEEV -0.28% , Weibo /zigman2/quotes/206830028/composite WB -3.90% , Xactly and Zillow Group /zigman2/quotes/205077794/composite ZG -5.13% , to name nine. Should the averages correct, speculators will need to be patient in monitoring these, as it may take a number of weeks for some of them to re-set their patterns.

It will be important to watch the action of the leading stocks on this next pullback in the averages. Some of the more-speculative glamours may provide the most valuable insight into the mind-set of market participants.

Curiously, senior, or liquid, glamours like Amazon.com /zigman2/quotes/210331248/composite AMZN -4.84% and Facebook /zigman2/quotes/205064656/composite FB -3.19% may not provide the best reading of the speculative sentiment among participants. Household names like these are often the last to be sold in a market correction.

Another thing to be aware of is that a market's health can best be ascertained by the rally following a decline. Here, leadership, breadth and volume should be analyzed. A shortfall in any of these would be of value to know.

Among the names, Spark Therapeutics /zigman2/quotes/200464619/lastsale ONCE 0.00% uses gene therapy to develop treatments for rare diseases. This is a development-stage company that most analysts on Wall Street expect to lose money this year and next.

/zigman2/quotes/201030587/composite
US : U.S.: NYSE
$ 2.76
-0.06 -2.13%
Volume: 40,344
Jan. 21, 2022 2:55p
P/E Ratio
10.23
Dividend Yield
N/A
Market Cap
$236.83 million
Rev. per Employee
N/A
loading...
/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 2,637.56
-28.59 -1.07%
Volume: 1.72M
Jan. 21, 2022 3:00p
P/E Ratio
25.51
Dividend Yield
N/A
Market Cap
$1770.96 billion
Rev. per Employee
$1.77M
loading...
/zigman2/quotes/204419752/composite
US : U.S.: Nasdaq
$ 98.31
-0.67 -0.68%
Volume: 362,399
Jan. 21, 2022 2:59p
P/E Ratio
18.73
Dividend Yield
N/A
Market Cap
$7.16 billion
Rev. per Employee
$309,505
loading...
/zigman2/quotes/203831055/composite
US : U.S.: NYSE
$ 218.86
-4.44 -1.99%
Volume: 60,624
Jan. 21, 2022 2:54p
P/E Ratio
244.47
Dividend Yield
N/A
Market Cap
$8.34 billion
Rev. per Employee
$215,296
loading...
/zigman2/quotes/208108773/composite
US : U.S.: NYSE
$ 312.00
-16.27 -4.96%
Volume: 429,157
Jan. 21, 2022 3:00p
P/E Ratio
106.91
Dividend Yield
N/A
Market Cap
$19.70 billion
Rev. per Employee
$235,060
loading...
/zigman2/quotes/204752752/composite
US : U.S.: Nasdaq
$ 8.36
-0.01 -0.12%
Volume: 1.70M
Jan. 21, 2022 3:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$616.86 million
Rev. per Employee
$164,610
loading...
/zigman2/quotes/202850210/composite
US : U.S.: NYSE
$ 222.07
-0.61 -0.28%
Volume: 1.02M
Jan. 21, 2022 3:00p
P/E Ratio
84.07
Dividend Yield
N/A
Market Cap
$34.24 billion
Rev. per Employee
$391,043
loading...
/zigman2/quotes/206830028/composite
US : U.S.: Nasdaq
$ 33.29
-1.35 -3.90%
Volume: 839,921
Jan. 21, 2022 3:00p
P/E Ratio
22.82
Dividend Yield
N/A
Market Cap
$8.47 billion
Rev. per Employee
$424,641
loading...
/zigman2/quotes/205077794/composite
US : U.S.: Nasdaq
$ 50.48
-2.73 -5.13%
Volume: 717,298
Jan. 21, 2022 3:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$13.68 billion
Rev. per Employee
$918,244
loading...
/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 2,886.52
-146.83 -4.84%
Volume: 5.35M
Jan. 21, 2022 3:00p
P/E Ratio
56.65
Dividend Yield
N/A
Market Cap
$1538.36 billion
Rev. per Employee
$352,824
loading...
/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 306.46
-10.10 -3.19%
Volume: 18.94M
Jan. 21, 2022 3:00p
P/E Ratio
21.99
Dividend Yield
N/A
Market Cap
$880.59 billion
Rev. per Employee
$1.92M
loading...
/zigman2/quotes/200464619/lastsale
US : U.S.: Nasdaq
$ 113.57
0.00 0.00%
Volume: 23,897
Dec. 17, 2019 12:00a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
N/A
Rev. per Employee
$175,883
loading...
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