The market’s pullback of late has been relatively sharp and has done damage to leading stocks–there’s no doubt about it.  And my gut feeling is that this retreat has further to run … sort of.  Let me explain.

First, any market correction from here would be normal; I doubt that a sharp retreat would lead to a prolonged bear phase, as this new bull market is just a few months old.  And realize that, after a mega-run for the major indexes since March, a correction of some sort would be relatively normal, and possibly even healthy, allowing growth stocks to build launching pads.

Second, investor sentiment is currently pretty optimistic; things like put-call ratios and bull-bear surveys are stretched to their most extreme (bearish for the market) levels in months.  That is going to happen in a bull market, but it still likely means Mr. Market has some more pain to dish out.

Thus, right now, I’m focused on trimming my weakest holdings, possibly taking a few chips off the table in some extended winners, but most of all, searching for the stocks that are holding up best during this retreat.

Interestingly, I’m seeing some positive action in many “non-growth” stocks.  One of these is Thor Industries (THO), which was featured in Cabot Top Ten Report back on August 10.  Here’s what I had to say about it:

“You may not have heard of Thor Industries (THO), but you’ve certainly heard of some of its brands of travel trailers, recreational vehicles and buses. Thor got started in 1980 when it acquired Airstream, maker of the iconic aluminum travel trailers.  Thor bought General Coach in 1982, El Dorado Bus in 1988, National Coach and Dutchmen Manufacturing in 1991, Champion Bus in 1998, merged with Keystone RV in 2001, bought Damon in 2003, Crossroads RV in 2004 and Goshen Coach in 2005.  This aggressive program of acquisition has made Thor a giant in the industry and a U.S. manufacturing success story. Investors see big potential in travel trailers and RVs as Boomers hit the road in retirement.  The company’s earnings took a big hit in its Q2 report, but it stayed profitable, which is more than can be said for many others in the automotive industry.  This is a good story and a company making its debut in today’s Cabot Top Ten Report.  We like it.”

Granted, it’s not a revolutionary story, but companies like Thor often produce big gains early on in bull markets (their industries are some of the first to turn up) as earnings rise sharply.  The stock itself broke out of a well-formed three-month base at the end of July, when it soared above 24 on gargantuan volume (there were two days of more than quadruple average volume!), and THO has since retreated in a very calm, cool and collected manner.  It now stands around 26.

I think there will be good support in the 23 to 24 area, and think buying some THO here is a great risk-reward opportunity.