19.03 -0.48 (-2.51%) Sell

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

13 min read

AMERICAN EAGLE OUTFITTERS INC ranked among the worst performers today. It delivered -2.51% to close at 19.03. It's recent 5 day performance has been +2.95%, -4.15%, -0.55%, -6.79% and +1.96%.

[Themes containing AEO]

AEO showed a strong bearish trend over the last 3 months. During this period AEO delivered -23.2% and saw a maximum drawdown of -23.64%. There was a short signal during this period which returned +12.38%.


AEO has been underperforming the SP500 index in recent time. It showed significant outperformance (compared to the SP500 index) from 21 Aug, 2017 to 21 Aug, 2018. Over the last 2 years 11 months and 7 days, AEO underperformed the SP500 index on 47% days. Which indicates that on days AEO underperforms the SP500 index, it's performance is marginally worse than on the days it outperforms the SP500 index.

AEO was profitable on 51% days in the last three months. During this time, it delivered on average -0.4% per day. It delivered it's worst daily return of -6.79%, during this period, on Tuesday, 4 Dec, 2018. The longest stort-term trend during this period was 8 profitable days, which started on 19 Oct, 2018 and went on till 30 Oct, 2018. This bullish trend returned +13.21% to investors.

The last 12 months saw AEO's investors making profits in 7 months and incurring losses in 5 months. AEO was less consistent in delivering monthly returs than SP500 index. AEO was also a more risky investment than SP500 index as it's worst month in the last year, Nov 2018, returned -9.24% compared to -7.28% returned by SP500 index in Oct 2018. AEO had a longer winning streak of profitable months than SP500 index. It went up in 7 straight months (from Feb 2018 to Aug 2018) during which period it delivered +35.78%.

Wealth is not his that has it, but his that enjoys it.
-- Benjamin Franklin

AEO is currently seeing overall increase in volatility. In comparison, the SP500 index is seeing increase in volatility. During the last three months, there was a significant surge in AEO's volatility from 13 Sep, 2018 to 11 Dec, 2018. While there was a significant surge in the SP500 index's volatility from 13 Sep, 2018 to 29 Oct, 2018.

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

Investors trading in AEO derivatives at this moment can consider 'Covered Call' options strategy to receive better risk-adjusted returns.

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

On a general note (since you are interested in AEO), three mid cap instruments that deserve special mention are ABMD, LULU and SQ. They have all outperformed the market and must be closely watched for investment opportunities.

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