The Dow Jones Industrial Average may be at record highs, but the NASDAQ Composite index is down 2.5 percent on the year. And since its March peak, the tech-heavy index is off 5 percent.
The selling may continue, but that’s perfectly alright, according to portfolio manager Chad Morganlander of Stifel Nicolaus' Washington Crossing Advisors.
"I think it's just a healthy pullback," Morganlander said. "You can expect 3 to 5 percent pullback on the NASDAQ."
Morganlander sees investors continuing to move money out of highflying momentum stocks that were all the rage in 2013 and into value stocks such as Oracle and Cisco. "I would look towards some of the old tech names as value plays for good opportunities in 2014," Morganlander said. "I think you can get paid well for taking on the risks there. But a 3 to 5 percent correction [in the NASDAQ], that wouldn't shock me."
Mark Newton, chief technical analyst at Greywolf Execution Partners, believes that news of the NASDAQ's demise has been greatly exaggerated.
"We would really need to see a lot more sign of deterioration to think that the NASDAQ is going to fall a lot further," Newton said.
Newton dismisses what other technical analysts see as a head and shoulders pattern in the NASDAQ. That formation is said to begin in December with a neckline around its April 16 lows near 3,946. The index also touched its 200-day moving average at that low point.
"We really haven't confirmed those patterns," Newton said. There's really no conviction that the market has to go lower."
Newton thinks the NASDAQ will start to bottom out soon and then move upward. "We're probably in stage for another four to six weeks of churning and probably a little bit of a rally," Newton said. "The bigger pullback will probably postponed until late summer/early fall."
To see the full discussion on the NASDAQ, with Morganlander on the fundamentals and Newton on the technicals, watch the above video.
[ Disclosures: Stifel makes a market in the securities of Oracle Corporation.Stifel expects to receive or intends to seek compensation for investment banking services from Cisco Systems, Inc. in the next 3 months. Stifel makes a market in the securities of Cisco Systems, Inc.]