One of the tricks that Jim Cramer has learned over the years is that sometimes just taking a quick look at the goods that consumers are buying is the simplest way to make money in the stock market.
That is why Cramer decided to take a look at the clues sprinkled all over the market that can help investors come up with solid investing ideas.
To find those clues, the "Mad Money" host revealed a methodology that he used to follow back when he was a hedge fund manager and needed to come up with creative new investments off the beaten path yet linked to major trends in the economy.
Cramer has had his eye on retail recently as a big trend, right in the epicenter of reporting. Most major retailers are reporting earnings right now, and Cramer wanted to find a way to leverage that.
"During this period I try to find what trends stand out as investible so I can pick stocks within those trends, and what companies are doing well versus the performance of their stocks," Cramer added.
On Monday night investors heard a disturbing report from Urban Outfitters, which came as a big shock since the company had recently been experiencing a huge turnaround. All of a sudden, its Anthropologie chain totally hit a wall, and the company expressed extreme disappointment.
Clearly investors were freaked out by this and dumped the stock, as it plummeted 15 percent on Tuesday.
"Any time a stock is down that much in one session, you have to stop everything and figure out whether you might be looking at an opportunity," Cramer said.
Cramer says to first ask whether the issue can be fixed; or is it structural?
Cramer thinks this could just be a temporary issue for Urban, because management confirmed on the conference call that problems arose with Anthropologie in the last two weeks of the quarter and they think things were better in May.
Ultimately the "Mad Money" host thinks this company deserves the benefit of the doubt, but according to history, the best way to capitalize on the stock is to wait for it to come down before making a move. He thinks the big sellers will finally exit on Wednesday, making it safer to buy in the late afternoon.
The same goes for Wal-Mart, which also reported a weak quarter. However, unlike Urban, investor expectations weren't that high.
"I think Wal-Mart's stock can bounce, but for the life of me I can't think of a reason to own it, except that it's come down a lot, and that's just not good enough," Cramer said.
Other retail stocks on Cramer's radar right now are Dicks Sporting Goods, and if you want sporting goods then Cramer wants you to be in Nike or Under Armour. He is also watching TJX, which he fears may have lost its upside already.
The one retail stock that was the shining star was Home Depot. It crushed the quarter with better than expected earnings. Yet the stock has been hit hard as investors started taking profits. This got Cramer thinking—what major theme is driving this?
"I then hit up Stanley Black & Decker and I had an ah-ha moment," Cramer said.
This is one stock that dominates the tool business and has major European exposure, which is a good thing now that Europe is turning. Additionally on Tuesday, we learned that housing starts are at a seven-year high, and Home Depot confirmed that household formation is beginning to grow again.
The result of all of this? Cramer had a big idea.
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He recommended that investors buy Stanley Black & Decker if it goes down on Wednesday, preferably before Lowe's conference call where it will spill the beans that tools are doing so well.
And if Lowe's is also strong, then Cramer also thinks it is a good idea go circle back to Home Depot again.
And that is how you find a bargain in the market every day.
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