A correction in more than half of the S&P 500 could be bullish

A major market sell-off on Wednesday swept the S&P 500 4 percent from its all-time highs. For a surprisingly large number of stocks, it looks even worse.

Around 60 percent of the S&P 500 is in a correction, having dropped more than 10 percent from 52-week highs, while just over 130 components have fallen at least 20 percent. The worst hit, Newell Brands, is down 58 percent.

Michael Batnick, director of research at Ritholtz Wealth Management, says this could actually be a bullish sign for the stock market.

"When you have these corrections under the surface, the lagging stocks catch up to the index, and it's no harm, no foul… Every time in the past where we've seen either a VIX spike or a washout where we see 52-week lows spike, that has been a really good buying opportunity," he said Tuesday on CNBC's "Trading Nation.", referring to Cboe's volatility index.

A peak in volatility and spike in stocks at 52-week lows in February, for example, led to a rebound on the S&P 500 during the following six-month stretch. During that February sell-off, the VIX peaked to over 50, a multiyear high, while the S&P 500 tumbled nearly 12 percent.

The opposite scenario where most stocks rally alongside the broader index would be a worry to Batnick.

"If we were in a situation where all stocks were hitting 52-week highs, that would be euphoria and that would be much more of a reason to turn cautious as opposed to what we're seeing today, which is some stocks are going up, and some stocks are going down and this is pretty normal behavior," he said.

Just 50 S&P 500 stocks were less than 2 percent from 52-week highs on Tuesday.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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