Market ‘due for a pause’ as many stocks enter correction

Investors in for test of resolve; half of S&P stocks down 10% or more from 52-week highs.

A 10% correction is a ways off for the wobbly market, but it’s already a reality for many stocks.

The stock market is in the midst of a fivesession slide and had another big down day on Tuesday that dropped the Standard & Poor’s 500 index 1.7%, leaving it 4.3% below its bull-market high on April 2. But the damage is far worse when you look at how the S&P’S components are doing. More than half the stocks, 274, are 10% or more down from their 52-week highs. A 10% drop from a recent high is the unofficial definition of a correction.

This downdraft is serving up the first test of resolve that investors have had to endure in 2012. The Dow Jones industrials, which had only one triple-digit loss in the first three months of the year, had three in the past week, including Tuesday’s 214-point drop to 12,716.

The fact that so many individual stocks are entering a correction is a sign the broader market may be due for some pain after months of setting bull-market highs, says Craig Johnson of Piper Jaffray. “It tells you we’re due for a pause,” he says.

Among the trends causing problems for specific companies’ stocks:

-Weak guidance. Investors are bracing for slower growth as first-quarter earnings reports kick off this week. But some companies are already warning results will be worse than expected. Constellation Brands, a large maker of alcoholic beverages, is down 15% from its 52-week high. The company warned that earnings in its current fiscal year could be as much as 13% below forecasts, says Timothy Ramey of D.A. Davidson.

-Ind-stry challenges. While tech stocks have been big winners in 2012, some industry players are being left behind. JDS Uniphase and Sandisk are among the notable laggards in tech, falling 21% and 44%, respectively, from their 52-week highs. Sandisk is being hurt in the short term by a steep decline in the pricing for some computer memory chips, says analyst Tristan Gerra of Robert W. Baird.

-Company- specific issues. First Solar, a leading maker of solar modules, has seen its stock fall 86% from its 52-week high. Investors are worried about warranty claims the company faces, says Colin Rusch of Thinkequity. First Solar in 2009 fixed the issue causing the warranty claims, according to a regulatory filing. But falling natural gas prices have made it less competitive, says Jim Kelleher of Argus Research.

When the stock market is weak, investors look for any problems as an excuse to sell, says D.A. Davidson’s Ramey. “The market is going down anyway,” he says. “The stocks that disappoint . . . feel the heat.”