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Trading Bargain Stocks in a Weak Market

Another round of reasons to worry has hit the stock market. As soon as good news from the Euro Zone (last week) boosted spirits, the ISM monthly report came in showing a contraction of US manufacturing. It is the first downturn in 35 months. Stocks fell and, in general, the market is weak. Although the news often seems like an unending melodrama the fundamentals are real, and disturbing. Europe is drowning in debt. The slowly expanding US economy may be in trouble and China is seeing a real economic slowdown. Can a trader make a profit trading bargain stocks in a weak market such as we now have? If so, just how does a stock, options, commodities, or Forex trader approach today’s markets? Here we will limit ourselves to stocks and considering how to make money trading bargain stocks in a weak market. Remember that sometimes the question is not how to trade stocks but when to trade stocks and when to stay away.

When general economic news turns bad the multinational big cap stocks typically take a hit. This happened very recently when the ISM manufacturing report cast its pall over the market. Alcoa, Boeing, Caterpillar, DuPont, ExxonMobil, and GE all fell a little. However, these stocks are very closely followed by many analysts and commonly offer few surprises. We are not looking at the well-known big cap stocks when we look at trading bargain stocks in a weak market. We are typically looking at overlooked stocks. These may be large cap stocks or small cap stocks. They will have good fundamentals and maybe a surprise or two for the trader who does his homework. A good example from years ago was Sears after the fall. The company was not making money as a retailer and its price reflected that. However, Sears had a huge amount of real estate. When one priced Sears as a real estate holding company it was grossly underpriced. The market eventually saw that and the stock rose dramatically. With all of the focus on crisis talks in Greece and other international issues traders too often forget to look at fundamentals back here at home. Trading bargain stocks in a weak market means paying attention to individual stocks.