ECOPETROL S.A. (FOREIGN)

19.04 +0.34 (+1.76%) Sell

Profit booking on the minds of EC investors as it marginally outperforms

13 min read

ECOPETROL S.A. (Foreign) was among the best performers on Wednesday. It returned +1.76% to close at 19.04. It is currently trading -31% below it's 52 week high of 27.65.

[Themes containing EC]

EC is currently in a down trend. The current bearish signal has generated a profit of +12.78% for investors in the last three months.

Trend

EC has been underperforming the SP500 index in recent time, after having outperformed till 1 Oct, 2018. Over the last 2 years 11 months and 8 days, EC outperformed the SP500 index on 52% days.

During the last three months EC was mostly loss making and delivered on average -0.39% per day. It's best return during this period (of +6.51%) was on Monday, 3 Dec, 2018. While it's worst loss in the same period (of -6.15%) was on Thursday, 1 Nov, 2018. There was initially a bullish trend during this period which started on 13 Sep, 2018 and went on till 18 Sep, 2018. The bullish trend returned +4.67% to investors. This was followed by a bearish trend that started on 19 Sep, 2018 and ended on 21 Sep, 2018. This bearish trend lost -5.01% of investor capital.

EC had 6 profitable and 6 loss making months over the last year. During the last year, EC underperformed SP500 index on monthly return basis. EC significantly outperformed SP500 index in Jan 2018, when it returned +22.61% compared to +4.75% returned by SP500 index during it's best month in the last one year - Jan 2018. EC had a shorter streak of profitable months than SP500 index. It only went up in 3 straight months during the last year. It is interesting to note that both EC and SP500 index significantly outperform during months when quarterly/annual results are announced.

My formula for success is rise early, work late and strike oil.
-- JP Getty

EC 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 fall in EC's volatility from 13 Sep, 2018 to 9 Oct, 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 EC 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.

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

On a general note (since you are interested in EC), if you are an investor in VIPS, you need to be extra careful (consider limiting your exposure or diversifying) as it is extremely unpredictable and therefore risky.

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