Here’s How to Profit from a Stock Market Crash

Profit from a Stock Market CrashStock Market Crash 2016 Spells Opportunity

This is one of the craziest starts to the year and my stock market advice for 2016 is to focus on your risk exposure, but also to consider ways to profit from a stock market crash.

It is the case that the stock market already went up—tremendously—in anticipation of an economic recovery. Therefore, a major price correction on global economic worries is not unwarranted. The stock market’s been due for a material price correction for a number of quarters and that’s even if economic data was rosy and earnings were robust.

In the context of a secular bull market, the U.S. economy can experience within it a recession and the stock market can go through major price retrenchments. What’s important is to make sure your portfolio is safely positioned for a slow-growth world and a rising interest rate environment.

Investment-grade, dividend-paying stocks are absolutely crucial going forward. It may very well be the case that dividend yield is the only return you get from stocks over the coming quarters.

In any market, there are always good trading opportunities and with the current price correction that’s taking place, this is a good time to put some brand-name, higher-risk trading opportunities on your radar.

This doesn’t mean that now is a great time to be a buyer (this correction has more legs), but rather it means that fear following a stock market crash does create opportunity. Watching and waiting are perfectly good strategies.

Having said that, one excellent large-cap, risk-capital stock to watch right now is Alibaba Group Holding Ltd (NYSE:BABA).

Chinese data is directly affecting U.S. market trading action and a lot of U.S.-listed Chinese equities are trending lower, including Alibaba stock.

The price chart for Alibaba stock is featured below:

Alibaba Group Chart

Chart courtesy of www.StockCharts.com

I like Alibaba stock as a potential great turnaround trade for risk-capital investors, not because China’s economic data is so rosy right now, but because it is the Amazon.com, Inc. (NASDAQ:AMZN) of the greater China region and this is still a burgeoning economic zone.

BABA stock did what so many new initial public offerings (IPOs) often do; it started out great, the stock ran out of new buyers, and then it drifted lower. The low in September of last year was a good opportunity for new investors. With the position’s current drift, Alibaba stock and its valuation are becoming attractive.

The company reports its next set of financials at the end of January, which is a very important quarter—a catalyst quarter for the position in this correction.

The recent stock market crash highlights the need for more attention on portfolio risk, asset allocation, and quality. But it also highlights opportunity. We’re in a rout that’s going to last for a while, so taking good stock market advice and carefully applying it to your portfolio is a wise choice at this time.

This is how you profit from a stock market crash.