Was Friday’s drop the start or the end of the correction? This week’s close will be important from a technical perspective, and MoneyShow’s Tom Aspray is focusing on one industry group that is clearly leading the broader market.

The stock market fell off the earnings cliff Friday. Selling was broad-based in reaction to Google’s (GOOG) earnings goof and a series of other earnings disappointments. This combination, along with the media focus on the 1987 crash, was enough to cause many skittish investors to run for the exits.

Friday’s decline did show some signs of panic selling, which we have not seen since the June lows. The market was set up for heavy selling early Monday, but the futures are up holding up in early trading

Last week’s news suggested that the economy might be stronger than most expect. Retail sales were strong last week, and the Leading Economic Indicators (LEI) jumped sharply. The LEI has a good record of forecasting recessions, and the latest readings show a continued pattern of economic growth.

 The stock market rally over the past few months has been in contrast to the prevailing negative view of the economy, and the recent data suggests that stocks may be right.

A rebound is expected this week, but it will need to last more that a couple of days and show impressive strength to set the stage for an upside breakout. One bright spot has been asset-management stocks, and two in particular look especially interesting.

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Chart Analysis: The DJ US Asset Managers Index was up 4% last week, compared to a 0.5% decline in the Spyder Trust (SPY). Since the June lows, the Asset Index is up 20.6%, while SPY is up just 12.6%.

  • The weekly chart shows that resistance (line a) was slightly overcome last week. A weekly close above it would be much more positive.

  • There is more important resistance in the 130 area, which is 14% above current levels.

  • The relative performance or RS analysis overcame its downtrend (line c) in late August, and broke through short-term resistance (line d) last week.

  • The daily RS analysis (not shown) has clearly completed its bottom formation.

  • The weekly OBV is above its WMA, and is in a uptrend that goes back to late 2011 (line e).

  • Support waits at 109, which is the four-week low.

    • The Bank of New York Mellon (BK) made a new 52-week high last week after reporting an 11% gain in third-quarter earnings. It was up 6.9% for the week, and is up almost 28% from the June lows.

    • The resistance at $24.70 (line f) was overcome during the week, but BK closed below it.

    • The major 38.2% resistance from the 2007 high at $50.26 is now at $28.63, with the high from early 2011 at $32.50.

    • The weekly relative performance closed just above resistance (line h) last week, and appears to have completed its bottom formation (line i).

    • The daily RS analysis (not shown) has completed its bottom formation, as it has exceeded its July and September highs.

    • Volume last week was the highest since last May, and the on-balance volume (OBV) has turned up and is testing key resistance.

    • There is initial support in the $23.60 to $24 area, with much stronger levels in the $22.50 to $23 area.

    NEXT: How to Profit on This Sector

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    AllianceBerstein Holding (AB) is a $1.7 billion asset manager that currently yields 5.1%. It outperformed the SPY by 2.5% last week, and has gained 43% from the July lows.

    • The weekly resistance at $16.07 (line a) was overcome last week.

    • The 38.2% Fibonacci retracement resistance from the 2007 high of $94.94 is now at $20.50.

    • The weekly OBV broke through its resistance (line c) in September.

    • The breakout level in the OBV was tested four weeks ago, and has now turned higher.

    • The daily OBV (not shown) is also positive.

    • AB gave up some of its gains Friday, with next support at $15.60 to $16 and then stronger levels at $15.

    • AB reports earnings after the close on Wednesday, October 24.

    What it Means: The recent action of the asset managers index is typical of what you see when an industry group or sector is becoming a market-leading sector. If the market is hit with further selling this week, I would expect the asset managers to hold up better.

    I like both of these on a pullback, but would hold off putting the order in for AllianceBerstein Holding (AB) until Thursday, after the earnings are released.

    How to Profit: For Bank of New York Mellon (BK), go 50% long at $24.04 and 50% long at $23.46, with a stop at $22.12 (risk of approx. 6.8%).

    For AllianceBerstein Holding (AB), go 50% long at $15.42 and 50% long at $15.08, with a stop at $14.18 (risk of approx. 7%).

    NEXT: The Charts in Play Portfolio

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