256.4 +25.21 (+9.83%) Sell

BUTTERFLY does a dead cat bounce, it's still too early to buy into it

13 min read

BTRFLY GANDHI APPL LTD was among the best performers on Wednesday. It returned +9.83% to close at 256.4. It is currently trading -57% below it's 52 week high of 607.05.

[Themes containing BUTTERFLY]

Buy-and-Hold investors in BUTTERFLY experienced a maximum drawdown of -25.99% over the last three months. It returned +8.12% during this up trending period. There were both Long and Short signals during this period, while the long signals were significantly more profitable than the short signals. The net profit from Long signals was +2.67%.


BUTTERFLY has been outperforming the NIFTY-50 index in recent time. Over the last 3 years and 1 month, BUTTERFLY underperformed the NIFTY-50 index on 56% days.

During the last three months BUTTERFLY delivered losses on 64% days. However, it still managed to end this period in a profit. It's best return during this period (of +19.99%) was on Monday, 31 Dec, 2018. While it's worst loss in the same period (of -9.99%) was on Wednesday, 2 Jan, 2019. There was initially a bearish trend during this period which started on 13 Nov, 2018 and went on till 20 Nov, 2018. The trend delivered -18.13% losses to investors. This was followed by a bullish trend that started on 26 Dec, 2018 and ended on 1 Jan, 2019. This bullish trend delivered +36.63% to investors.

BUTTERFLY had 4 profitable and 8 loss making months over the last year. During the last year, BUTTERFLY underperformed NIFTY-50 index on monthly return basis. BUTTERFLY significantly outperformed NIFTY-50 index in Dec 2018, when it returned +34.56% compared to +6.56% returned by NIFTY-50 index during it's best month in the last one year - Jul 2018. BUTTERFLY had a longer winning streak of losing months than NIFTY-50 index. It went down in 5 straight months (from May 2018 to Sep 2018) during which period it delivered -69.85%. It is interesting to note that both BUTTERFLY and NIFTY-50 index significantly outperform during months when quarterly/annual results are announced.

I made my money the old-fashioned way. I was very nice to a wealthy relative right before he died.
-- Malcolm Forbes

BUTTERFLY is becoming more volatile overall. In comparison, the NIFTY-50 index is seeing a fall in volatility. During the last three months, there was a significant fall in BUTTERFLY's volatility from 25 Oct, 2018 to 29 Oct, 2018. While there was a significant fall in the NIFTY-50 index's volatility from 31 Oct, 2018 to 5 Dec, 2018.

Advanced/professional short-term investors should note that BUTTERFLY has significant negative skewness in it's return distribution. This indicates that BUTTERFLY is very risky for short-term investment and can significantly underperform for long durations.

NIFTY-50 index has more chance of extreme outcomes than BUTTERFLY. Therefore, NIFTY-50 must receive a lower allocation than BUTTERFLY in your portfolio. NIFTY-50 index usually has shorter drawdown period than BUTTERFLY.

On a general note (since you are interested in BUTTERFLY), three instruments that deserve special mention are NIITTECH, SPLIL and IGARASHI. They have all outperformed the market and must be closely watched for investment opportunities.

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