The Dangers of Shorting Cult Stocks

Bitcoin is certainly grabbing headlines again overnight and this morning. Unfortunately, this time it isn't about froth and ascension in price. Mt.Gox, one of the original and largest exchanges for bitcoin transactions, appears to be no more. This collapse has certainly had some impact on the other large bitcoin exchanges but not to the degree one might think. Yes, bitcoin is well off its highs when it traded in the four figures, but it is still hovering around $500 per bitcoin. There are certainly still believers in the crypto-currency. Some are believers in alternative choice or unregulated currency while others appear to have crossed over to a cult status. And cults present a challenge for even the best traders.

Cult stocks, for instance, have a tendency to throw fundamentals out the window. Even the technical picture can become scattered. If there is a derivative of emotion, it is cult status. It is emotion to the nth degree. This is also what makes shorting cult stocks so incredibly dangerous. Shorting a cult stock without an imminent catalyst, usually bearish since cults more often support than oppose a stock, is a recipe for disaster. Add in any type of bullish overall market sentiment and a trader could find themselves down 5%, 10% or even 50% in a matter of weeks, sometimes days....362 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

Read the full story and get access to the Real Money Pro trading floor.

There’s no substitute for a trading floor to get great ideas, so Jim Cramer created a better one at Real Money and blogs there exclusively. We then added legendary hedge fund manager, Doug Kass, with his exclusive Daily Diary and best investing ideas. Staffed with more than 4 dozen investing pros, money managers, journalists and analysts, Real Money Pro gives you a flood of opinions, analysis and actionable trading advice found nowhere else, and allows you to interact directly with each expert.

Already a Subscriber? Please login.

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.