Hey, Ross here:
The S&P 500 is currently down about 6% from its high.
That’s not even a correction (10% drawdown) – let alone a bear market (20% drawdown).
But as today’s chart shows…
Nearly 40% of the index is already in a bear market.
Chart of the Day
The chart above can look a little confusing at first glance, so let’s break it down.
There are four rows.
Row 1 is just the S&P 500 price chart.
Row 2 is the drawdown of the S&P 500 from its 52-week high – currently at 5.8%.
Row 3 is the drawdown of the average S&P 500 stock from its 52-week high – currently at 18.7%.
And Row 4 is the percentage of S&P 500 stocks down at least 20% from their 52-week high – currently at 38.4%.
In other words, the average S&P 500 stock is down 18.7% from their high…
While 38.4% of S&P 500 stocks are down at least 20%.
Hence the title of this newsletter – 40% of stocks are in a bear market.
What are the implications of this?
One is it again highlights the dispersion in the market – the gap between the “winners” and the “losers”.
After all, if close to half the index is down at 20% or more, but the index itself is only down 6%…
Then it means the winners are the ones keeping the index up.
The second implication is a bit more counterintuitive, and I elaborate on it below.
Insight of the Day
There are big opportunities in targeting the stocks that are bottoming ahead of the market
The dispersion effect I talked about above – the winners holding up the index – would seem to suggest we should be targeting the winners.
If the trend was back upward, then yes – I would prefer to target the winners.
But right now, the broader trend of the index is still downward.
Which means there are big opportunities in targeting the stocks that are bottoming ahead of the market.
Remember, just like how certain stocks break out ahead of the market in an uptrend, others will bottom ahead of it in a downtrend.
Now there’s a caveat.
It’s far easier to identify stocks that are breaking out ahead of the market than the ones bottoming out ahead of it.
That means we can’t use the same strategies for identifying both groups of stocks.
Tomorrow morning, I’ll be sharing a little something on my top “bottom picking” strategy.
Make sure you keep an eye out for that.
In the meantime, if you want to watch me break down a stock that could have 50% upside (if you get in quickly)…
Then click here to watch this video now.
Customer Story of the Day
“Ross Givens from Trader’s Agency is an awesome resource to help you with your investing needs and investing education.
I waited about three months to write this review to give myself time to see the impact on my portfolio and I have been completely satisfied.
Ross has a no nonsense, simple approach that makes it easy for all investors and he takes the time to answer all questions on a weekly basis.
Thanks, Ross and Traders Agency!”
Embrace the surge,
Ross Givens
Editor, Stock Surge Daily
