Skip to main content

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (

Zenpenny

) -- During every market correction, opportunities come about that only become clear in hindsight. This is followed by imaginary calculations of the amount of profit that could have been yours if you had bought at precisely the bottom and held onto the point where your profit was maximized. You sit for a number of minutes daydreaming about the comfort and joy that money would have brought to your life. Then reality sets in and you decide that during the next market correction you will be more vigilant in researching these opportunities and seizing the moment when it arrives.

Here we are midway through 2011. We are in the midst of a correction that could be at the beginning stages of exhausting itself, leaving the market with the option of either working sideways for a while or perhaps moving right back up. I have observed the speculative fervor that gripped the financial market during the first quarter of this year dissipate greatly. It has been replaced by an unreasonable gloom that doesn't seem to be too far away from the hearts and minds of investors given the torture they have been put through the past 10 years.

Sustainable lows in the financial markets are built on a foundation of investor nausea, anxiety and anger. It is the act of investors vomiting up stock that allows the financial markets to carve out the bottoms from which future rallies can ensue. From memory, I can think of every bottom I have been a part of since 2000. There hasn't been one where I haven't had some degree of fear run through my body. There hasn't been one where all of my peers were afraid to pull the trigger and add exposure. There hasn't been one where the media wasn't telling the entire investment community that a one-eyed dragon was standing above them with the intention of incinerating all of their capital. There hasn't been one where people didn't think I was crazy for disseminating bullish opinions in the face of such obvious bearish realities.

What have I learned? Just this: What is obvious is obviously wrong. This is tattooed across the market's neck. I have seen this tattoo close up as the market has tried to murder me on many occasions. Yes, the market is a tattooed killer. Imagine the most ferocious inmate in the most dangerous prison and multiply it by 10. That's what you are contending with in this arena. That guy. He hates your guts, carries a sharp knife that used to be a comb and he wants to use it on you. Tricks, deceit, lies, manipulation, brainwashing -- all of these tools are at his arsenal in an effort to back you into that corner where your options for escape become limited.

We're at a point in the markets now where risk is becoming better defined. The downside, contrary to popular opinion, is becoming constricted by the amount of pessimism that has poured into the market during a very standard correction within a bull market. It is time to begin putting cash to work if you have some on hand. Equity exposure should be increased. Opportunities are there to be had.

I published an article in the middle of February listing five stocks to buy once the correction in the stock market comes around. I still like all the names on that list, with the exception of

Finisar

(FNSR) - Get Finisar Corporation Report

. Most of them, however, are very mainstream names. Every investor in the world owns

Apple

(AAPL) - Get Apple Inc. Report

at this point, as one example. My recommendation of AAPL doesn't win me the original thinker of the year award, by any means.

I decided to look off the beaten path to find some stocks that have the potential to create some real gains once the market rebounds. I put together a scan of the markets that singled out those names that were the strongest prior to the market slide over the past month. I wanted to see multiyear highs recently. I also wanted to see an orderly pullback that didn't stink of excessive selling pressure. High on the list were companies that have a good bit of short interest to fuel the fire of the rally once the market turns. A limited float of available shares was also a consideration. I also wanted a market cap under $2 billion. I came up with the following five names:

TheStreet Recommends

Silicon Graphics International

(SGI)

,

Titan International

(TWI) - Get Titan International, Inc. Report

,

United Rentals

(URI) - Get United Rentals, Inc. Report

,

NN

(NNBR) - Get NN, Inc. Report

and

Sequans Communication

(SQNS) - Get Sequans Communications SA Report

.

Any of these five offer potential for real reward once the upside trend in the market resumes. There is a good deal of risk here should the market continue sliding as short sellers are running wild in most of the names. They have a tendency to pile on, so to speak, when the market goes into extended downtrends. Manage your risk if you are going to participate.

The tattooed inmate wants your shares. But it's not just your shares he wants. He'll take whatever and whoever he can get here. The goal is to scare you to the point where you give them up easily and never think about buying stock again.

Look down at your shoes. Make sure your laces are tied. Now prepare to sprint in the opposite direction. Your financial survival is at stake.

>>To see these stocks in action, visit the

5 Stocks Set to Fly as Markets Rebound

portfolio on Stockpickr.

Ali Meshkati is founder of Zenpenny.com, a Web site focused on investing in restructurings and special situations in micro-cap and small-cap stocks. Prior to Zenpenny, he managed Trillian Capital Partners LP, a top-ranked macro hedge fund. He has been trading the financial markets since 1994, working as an adviser to both individual clients, as well as an institutional trader with Bank of America. He can be reached at meshkati78@gmail.com.