28.82 -0.81 (-2.8%) Sell

AA is a falling knife, continues to bleed every investor trying to catch it

13 min read

ALCOA CORP ranked among the worst performers on Friday. It returned -2.8% to close at 28.82. On a day when the overall market breadth was 35%, it closed higher than 80% of the market. In comparison, the benchmark SP500 index closed today at -0.0233%.

[Themes containing AA]

Buy-and-Hold investors in AA experienced a maximum drawdown of -34.19% over the last three months. It returned -31.4% during this strong down trending period. There were no long signals during this period, where the short signal generated good profits of +31.4% for investors.


AA has been underperforming the SP500 index in recent time, after having outperformed till 20 Apr, 2018. Over the last 2 years 1 month and 6 day, AA outperformed the SP500 index on 52% days.

During the last three months AA was mostly loss making and delivered on average -0.55% per day. It's best return during this period (of +7.73%) was on Wednesday, 28 Nov, 2018. While it's worst loss in the same period (of -8.36%) was on Wednesday, 24 Oct, 2018. There was initially a bullish trend during this period which started on 1 Oct, 2018 and went on till 4 Oct, 2018. The bullish trend returned +6.56% to investors. This was followed by a bearish trend that started on 5 Oct, 2018 and ended on 15 Oct, 2018. This bearish trend lost -19.4% of investor capital.

On monthly basis, AA delivered losses in more months over the last year, than profits. AA delivered profits less regularly than SP500 index. AA significantly outperformed SP500 index in Apr 2018, when it returned +15.47% compared to +4.75% returned by SP500 index during it's best month in the last one year - Jan 2018. AA had a longer winning streak of losing months than SP500 index. It went down in 4 straight months (from Sep 2018 to Dec 2018) during which period it delivered -42.42%. It is interesting to note that both AA and SP500 index significantly outperform during months when quarterly/annual results are announced.

"Financial crises are like fireworks: they illuminate the sky even as they go pop.

AA is becoming more volatile overall. In comparison, the SP500 index is seeing a rise in volatility. During the last three months, there was a significant surge in AA's volatility from 11 Sep, 2018 to 29 Nov, 2018. While there was a significant surge in the SP500 index's volatility from 10 Sep, 2018 to 29 Oct, 2018.

Advanced/professional short-term investors should note that AA has significant positive skewness in it's return distribution. This indicates that investors can expect AA to recover from drawdowns quickly. Which makes AA a good candidate for investing on short-term bullish trends or even counter-trends hoping for a pull-back.

Investors trading in AA derivatives at this moment can consider 'Bear Put Spread' options strategy to receive better risk-adjusted returns.

AA has more chance of extreme outcomes than the SP500 index. Therefore, AA must receive a lower allocation than SP500 in your portfolio. SP500 index usually has shorter drawdown period than AA.

On a general note (since you are interested in AA), two mid cap instruments that deserve special mention are ABMD and AMD. They have significantly outperformed the overall market.

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