134.4 -1.86 (-1.39%) Sell

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

13 min read

CUMMINS INC is a falling knife that can bleed you if you catch it on Tuesday. It delivered -1.39% to close at 134.4. On a day when the overall market breadth was 35%, it closed higher than 18% of the market. In comparison, the benchmark SP500 index closed today at -0.0004%.

[Themes containing CMI]

Buy-and-Hold investors in CMI experienced a maximum drawdown of -16.21% over the last three months. It delivered -5.4% during this bearish trending period. There were both Long and Short signals during this period, where the short signals were significantly more profitable than the long signals.


CMI has been underperforming the SP500 index in recent time. It showed significant outperformance (compared to the SP500 index) from 5 Jan, 2016 to 30 Oct, 2017. Over the last 2 years 11 months and 7 days, CMI outperformed the SP500 index on 54% days.

During the last three months CMI delivered profits on 52% days. However, it still managed to end this period in a loss. It's best return during this period (of +4.02%) was on Thursday, 1 Nov, 2018. While it's worst loss in the same period (of -4.88%) was on Wednesday, 24 Oct, 2018. The longest stort-term trend during this period was 8 profitable days, which started on 12 Sep, 2018 and went on till 21 Sep, 2018. This bullish trend returned +6.14% to investors.

The last 12 months saw CMI's investors making profits in 5 months and incurring losses in 7 months. CMI was less consistent in delivering monthly returs than SP500 index. CMI was also a more risky investment than SP500 index as it's worst month in the last year, Dec 2018, returned -11.03% compared to -7.28% returned by SP500 index in Oct 2018. CMI and SP500 index, both had periods of 2 consecutive losing months. It is interesting to note that both CMI and SP500 index significantly outperform during months when quarterly/annual results are announced.

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CMI 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 CMI's volatility from 1 Oct, 2018 to 30 Oct, 2018. While there was a significant surge in the SP500 index's volatility from 14 Sep, 2018 to 29 Oct, 2018.

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

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

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

On a general note (since you are interested in CMI), V is a large cap that deserves to be closely tracked for investment opportunities.

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