- Short sellers: This is where most minds will go. In very few instances is a short-seller actually an enemy, but when we're discussing what could halt your bullish stocks in its tracks this will be number one in most investors' minds. If you're trading a China-based stock, a low float name that has run significantly higher, a company tied to a hot industry, a penny stock, or something that appears derailed from reality, then you -- a savvy short-seller -- may be waiting to pounce. Will their analysis be correct? It won't matter, if they can do enough to create short-term doubt. Doubt kills momentum. And momentum is often the driver in many stocks.
- Institutions: Ironically, some investors look to institutions as a reason to buy a stock, but the institution can be your enemy, especially if it is the wrong institution or hedge fund. There are hedge funds that will specifically target companies of a certain size, in a certain sector, or of a certain cash need. Their financing is toxic and can break a stock. The company may be fine, but that means little to the people watching their holding getting crushed. One thing is for sure, if you name names here, they will come after you.
- Insiders: Insiders generally buy for one reason and we like to see it. They can sell for many reasons, but often the market will shoot first and ask questions later. Big insider selling can work against you. If a company's insiders have a history of selling into pops, you want to be aware of the possibility. It's a quick check, one worth doing.
- Cash burn (or underfunded companies): Investors should have an idea of where, when, or why a company might sell shares into the market via an offering. Often, a unprofitable company with a high cash burn rate or one that is underfunded, could halt moves higher in quick fashion. Sometimes this can be opportunity, but when cash is raised for "general corporate purposes," it will often give me pause. That doesn't mean it is the wrong move for the company, but from a trader's view, it can be your short-term enemy.
- The market: Yes, the market itself can be your enemy. If you have a high beta name or one tied heavily to an exchange-traded fund, a sharp market pullback or even a lull could have a big negative impact on the position.
- Interest rates: We already have seen the impact in 2021. It's fair to say five and six are tied closely together, but some names are more sensitive to interest rates than others.
- White House/policy: Although the impact from new laws and reform can be short-lived, it can crush momentum. We're seeing that unfold in real-time with the cannabis sector right now. This tends to be more sector specific than stock specific, but it's something that needs to be considered if the particular sector is a hotbed in politics as well. Gun control, cannabis, clean tech, energy, and infrastructure all fit this enemy risk today.
- The Fed: The Fed giveth and the Fed taketh away. Again, this is a bit far-reaching and ties to point No. 5, but No. 5 can be a result of the action of the Fed or it can be the enemy exclusive of the Fed. In short, they are indeed their own entities.
- Trapped traders/technical resistance: Traders looking to exit from a trapped position are definitely an enemy. We can see this in the form of resistance on a chart. Unless we're at new highs, there's a fair chance there is a trader out there just waiting to get back to break-even before smashing the sell button.
- You: Your emotions and actions are likely the greatest enemy you'll face. A silent momentum killer we seldom like to discuss, but the most dangerous one on the list.
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