Hedge fund managers are supposed to be experts. Their funds, designed for different purposes, hold money belonging to the world’s richest investors.
So, you’d think that the funds would outperform the general market, right?
Well, you’d be wrong. The vast majority of funds don’t.
What they do accomplish, however, is more consistent growth. By leveling off the “tops and bottoms” from the stock market, hedge fund investors can sleep soundly knowing that their nest egg safe, relatively speaking.
That didn’t stop some of the world’s top funds from getting scorched in the 2008 financial crisis, of course, but by and large, fund managers know what they’re doing.
But that doesn’t mean you need to follow their every move, especially as a short-term trader. Your goals are likely very different than theirs. Moreover, fund managers often have conflicting opinions.
For example, a recent survey by Bank of America Merrill Lynch showed that 31% of the fund managers polled are expecting a global recession in 2020. That means, of course, that 69% did not.
So, when fund managers suddenly turn bearish on a particular stock, that immediately piques my interest for a long (bullish) position. After the initial shock of an analyst or fund’s sell rating, stocks will sometimes make a quick recovery.
And sometimes, it can turn into a prolonged rally, provided that the stock is already in good position to do so, like Aphria Inc. (NYSE: APHA), a company that’s being targeted by funds for short positions.
In the weekly candlestick chart above, you can see that APHA – a leading drug manufacturer – has struggled in 2019. Share prices topped out in March, setting a lower high before selling-off somewhat consistently for months.
Contact with the lower Bollinger Band was made a month ago, and now, several weeks later, APHA’s beginning to recover. This week, in particular, was a strong one for the stock.
And though APHA’s endured plenty of selling this year, it might finally be turning the corner. With last week’s green candlestick, APHA may have set a slightly higher low relative to the low of late 2018.
If share prices can climb above the current week’s high by a significant amount, it might make sense to go long at a trade trigger of $5.65. Past that, resistance looms overhead around $7.25.
If APHA can soar past resistance, we’d be looking at an $11.00 per share ceiling, almost 100% away from the trade trigger.
I don’t think I need to tell you how impressive a gain that would be in a trade that might only take a month or two.
So, even though a handful of fund managers are souring on APHA, that doesn’t mean everyone has to as well. Short-term traders willing to take a chance on a long position could find that if APHA keeps rising, it might end the year with a “bang” – something that could absolutely roast bearish positions in the process.
