Stop-loss on the minds of ALGN investors as it destroyed investor wealth

ALIGN TECHNOLOGY INC was among the worst performers on Friday. It lost -4.13% to close at 210.28. On a day when the overall market breadth was 35%, it closed higher than 3% of the market. In comparison, the benchmark SP500 index closed today at -0.0233%.

[Themes containing ALGN]

Buy-and-Hold investors in ALGN experienced a maximum drawdown of -47.98% over the last three months. It lost -43.89% during this strong down trending period. There were both Long and Short signals during this period, where the short signals were significantly more profitable than the long signals. The net profit from Short signals was +41.24%.

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ALGN has been underperforming the SP500 index in recent time, after having outperformed till 25 Sep, 2018. Over the last 2 years 11 months and 3 days, ALGN outperformed the SP500 index on 59% days.

During the last three months ALGN was mostly loss making and delivered on average -0.82% per day. It's best return during this period (of +6.95%) was on Wednesday, 7 Nov, 2018. While it's worst loss in the same period (of -20.2%) was on Thursday, 25 Oct, 2018. There was initially a bearish trend during this period which started on 2 Oct, 2018 and went on till 11 Oct, 2018. The trend delivered -21.89% losses to investors. This was followed by a bullish trend that started on 13 Nov, 2018 and ended on 16 Nov, 2018. This bullish trend delivered +3.69% to investors.

ALGN had 9 profitable and 3 loss making months over the last year. ALGN was profitable in more months than SP500 index. ALGN was also a more risky investment than SP500 index as it's worst month in the last year, Oct 2018, returned -43.5% compared to -7.28% returned by SP500 index in Oct 2018. ALGN and SP500 index, both had periods of 6 consecutive profitable months. It is interesting to note that both ALGN and SP500 index significantly outperform during months when quarterly/annual results are announced.

"The financial markets generally are unpredictable. So that one has to have different scenarios... The idea that you can actually predict what's going to happen contradicts my way of looking at the market.

ALGN is becoming less volatile overall. In comparison, the SP500 index is seeing a rise in volatility. During the last three months, there was a significant surge in ALGN's volatility from 1 Oct, 2018 to 25 Oct, 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 ALGN has negative skewness in it's return distribution. This indicates that investors may need to stay invested through long periods of drawdown before expecting a recovery.

Investors trading in ALGN 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 ALGN. Therefore, SP500 must receive a lower allocation than ALGN in your portfolio. SP500 index usually has shorter drawdown period than ALGN.

On a general note (since you are interested in ALGN), two instruments that have been extremely volatile in recent times are ICPT and OPNT. Investors in these instruments should consider reducing their exposure (to ICPT and OPNT) and diversifying their portfolios.