Hey, Ross here:
There’s a number underneath the S&P 500 this morning that makes the headline index look almost misleading.
Because while the S&P itself is still holding up reasonably well…
The average stock underneath it has taken a beating.
Take a look:
Chart of the Day
The average S&P 500 stock is now 19.3% below its 52-week high.
That’s basically a bear-market-sized drawdown hiding underneath an index that is only a couple percentage points off its high.
And several sectors have been hit even harder.
The average Consumer Discretionary stock is roughly 25.6% below its high.
Technology and Communication Services are both down around 24%.
Industrials are off more than 21%.
Even Energy – the strongest group on this chart – is still about 11% below its high.
So there are a LOT of beaten-down stocks out there right now.
Normally, you might assume that kind of price damage means the earnings picture is falling apart too.
Except it isn’t.
Since the end of June, expected Q3 earnings growth for the S&P 500 has actually been revised higher.
Analysts now expect roughly 28.9% growth, up from about 26.7% a few months ago.
And some of the sectors that have been knocked down hardest are still expected to put up strong earnings growth.
So we’ve got a strange combination:
A lot of individual stocks are already down 20% or more…
While the earnings outlook underneath the market has continued to improve.
That creates opportunity.
But it also creates traps.
Because a stock being 20% cheaper than it was a few months ago doesn’t automatically make it a bargain.
Insight of the Day
A big drawdown can be a bargain – or a warning.
I love buying a good company when the market gives me a discount.
But “this stock is down 20%” is not a reason to buy it.
Plenty of stocks fall 20% on the way to falling another 20%.
The question is why it got hit.
Maybe the whole sector got dumped and the business itself is still doing fine.
Maybe investors panicked over something temporary.
Or maybe the company really is deteriorating and the lower price is completely justified.
Those situations can look almost identical on a chart.
So if I want to buy a beaten-down stock, I want another piece of evidence.
And one of my favorites is what the people running the company are doing with their own money.
If a CEO, CFO, or Director sees the stock down 20% or 30%…
Knows exactly what’s happening with sales, margins, and demand…
And still reaches into their own pockets to buy a meaningful amount of shares…
Now I pay attention.
It doesn’t mean I blindly follow every insider purchase. Far from it.
Most insider buying isn’t something I’d touch.
There are warning signs you need to know…
And a few counterintuitive signals that can make one purchase far more powerful than another.
And later today at 11 a.m. Eastern…
I’m going LIVE to show you exactly what I look for.
I’ll break down the insider “warning signs” that can save you from following the wrong trades…
As well as my three most powerful – yet counterintuitive – insider buying signals…
And several stocks insiders are buying right now that I believe could have major upside ahead.
Click here to guarantee your free seat for today’s LIVE session if you haven’t already…
And I’ll see you in just a bit at 11 a.m. ET.
P.S. If you’re planning to attend on a mobile device, make sure you download the presentation app now so you don’t miss anything when it starts. See you there.
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Editor, Stock Surge Daily
