Updated from 6:27 a.m. EST

Last week was rough, actually very rough, as recession fears gripped the market and pushed stocks to their lowest levels in 14 months. Despite all of the negative sentiment, however, the world is not coming to an end.

As volatility increases, so does opportunity, and that is precisely why I compile and write this Rocket Stocks column each week. I like to try to find stocks that have real catalysts ahead of them that might propel them higher. Whether it's earnings, arbitration or a pure snapback play, hedge funds focus on stocks like these -- and so should you.

Before we look at this week's Rocket Stocks portfolio, let's review last week's market action.

For a little perspective on last week's selloff, let's quickly look at a few positives:
  • IBM (IBM) preannounced earnings Monday morning, aided by strong international growth and a positive currency conversion rate. IBM expects to handily beat estimates and showed that companies with strong international business and growth are likely to beat earnings estimates.
  • Oil traded below $90 a barrel as recession fears fueled the selling. This should take some stress off the consumer and inflation pressure.
  • BEA Systems (BEAS) was bought out by Oracle (ORCL) at a 23% premium.

Selling pressures and failed rallies really hurt the market; here are some of the reasons why the market sold off last week:
  • Ambac (ABK) received a warning from Moody's suggesting that the ratings firm would possibly cut its AAA-rated bonds. This sent shares down 80%.
  • California Pizza Kitchen (CPSK) posted earnings well below estimate averages due to rising cheese and commodity prices. This sent shares down 25% for the week and reignited inflation pressures.
  • Earrings from Citigroup (C) and Merrill (MER) brought massive writedowns of firm assets. Wall Street was looking for more disclosure and a "kitchen sink" type of approach this quarter from these banks.

Here's how last week's picks fared.

  • Teradyne (TER): Up 5% for the week.
  • Ralph Lauren (RL): Down 1.2%.
  • JetBlue (JBLU): Down 4%.
  • Genentech (DNA): Down 5%.
  • Merrill Lynch (MER): Down 5.3%.
  • Google (GOOG): Down 7.8% for the week.
  • Shaw Group (SGR): Down 11.4%.
  • Manitowoc (MTW): Down 12.8%.
  • Agrium (AGU): Down 18.3%.
  • Baidu.com (BIDU): Down 18.5%.

Now let's look at this week's Rocket Stocks.

First up is Dow Chemical ( DOW), which last week hit a 52-week low. Rumors have started again that Dow is likely to be acquired, this time by India's Reliance Industries, in concert with several private equity firms that might launch a bid in excess of $50 a share.

On Thursday, when this rumor broke, there was heavy trading in the out-of-the-money February $40 and $45 calls, with these contracts trading six times and 10 times their daily open interest. Heavy option trading has signaled potential deals in the past.

In the third quarter, Dow is going to receive $9.5 billion in cash for selling off part of its business to Kuwait. Factor in the current $32 billion market cap and add a 30% premium and you get $47 a share as the buyout price, which ironically is just below the stock's 52-week high.

Catalyst: Rumors, along with heavy option trading, could push this name higher.

Next up is CSX ( CSX), which reports earnings Tuesday. The rail sector could be one of the best investments for your money over the next 10 years. But let's see why CSX might explode off its earnings.

First off, agriculture products, along with phosphates and fertilizers, are in total bull markets and have been so for the past year. It is logical that if demand is high for such products, then the demand for transporting them will be high.

CSX is also conducting a huge campaign to return capital to shareholders with a $2 billion stock-buyback plan. The railroads, with little capex or competition, are likely the way that commodities will make their way from the Midwest to the West Cost en route to China.

Earnings Catalyst: Increased domestic and international demand are likely to help this company beat earnings estimates.

Another stock you might want to check out is PetMed Express (PETS), a name that's also listed in the Top 5 Animal Health Care Stocks portfolio on Stockpickr.com.

PetMed has had a history of beating earnings estimates, and this quarter should be no different. The company has in place a $20 million stock-buyback plan, which is just under 10% of its market cap, $55 million in cash and zero debt.

With a forward price-to-earnings (P/E) ratio of 13, Wall Street is discounting PetMed's growth potential. The stock also has a 15% short position and the past two quarters the company has solidly beaten analysts' expectations both on the top and bottom lines, thus PETS could be due for a snapback.

For more detailed analysis and the rest of this week's picks, check out the Rocket Stocks for the Week of Jan. 21-25 at Stockpickr.com.

As always, to find the snapbacks and potential breakouts on a regular basis, check out these Stockpickr portfolios, which I use in my own research each week:
  • Today's Hot List: This daily list is a must-view every midday to see what stocks are making the biggest moves and why.
  • Always check the Biggest Percentage Losers, a list of stocks that lost big the day before, because they can snap back hard.

    When you check this list on Stockpickr, you can see which stocks are owned by the quality hedge funds and mutual funds. Pay attention to those. They will be buying at the lower prices, so you should be also.
  • Ditto for the 52-week-low list. You must check the above two lists every day if you hope to find volatile stocks.
  • Biotech Short Squeezes: Dendreon (DNDN) and others can often be found in this category.
  • Stocks Rising on Unusual Volume: These are potential breakout stocks.
  • Stockpickr's System Trades of the Day: These are trades triggering that day in various backtested trading systems we've developed.
  • Stocks With Unusual Option Activity: Perhaps someone knows something?
  • Latest Activist Situations: These are beaten-down stocks that hedge funds are accumulating shares of and demanding change in. Believe me, these hedge funds piggyback each other. And once they start rocking the boat, things happen quickly. This should be on your must-view list.

One final place to frequent is the Answers section on Stockpickr, where ideas such as those presented in this article are thrown around daily.
At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.

James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for the Financial Times and the author of Trade Like a Hedge Fund, Trade Like Warren Buffett and SuperCa$h. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.

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