123.0 -0.92 (-0.75%) Buy

Don't consider buying ESLT now, it is risky at the moment

13 min read

ELBIT SYSTEMS LTD (Foreign) significantly underperformed on Friday. It lost -0.75% to close at 123.0. 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 -0.0191%.

[Themes containing ESLT]

ESLT showed a down trend over the last 3 months. During this period ESLT lost -5.17% and saw a maximum drawdown of -13.45%. It has been unusually choppy during this period. Long term investors are better off avoiding investing in ESLT till volatility reduces and a clear trend emerges.


ESLT has been outperforming the SP500 index in recent time. Over the last 2 years 11 months and 10 days, ESLT outperformed the SP500 index on 52% days.

During the last three months ESLT was mostly loss making and delivered on average -0.07% per day. It's best return during this period (of +4.52%) was on Tuesday, 16 Oct, 2018. While it's worst loss in the same period (of -4.17%) was on Thursday, 27 Sep, 2018. There was initially a bullish trend during this period which started on 17 Sep, 2018 and went on till 20 Sep, 2018. The bullish trend returned +3.99% to investors. This was followed by a bearish trend that started on 8 Oct, 2018 and ended on 11 Oct, 2018. This bearish trend lost -7.71% of investor capital.

ESLT had 6 profitable and 6 loss making months over the last year. During the last year, ESLT underperformed SP500 index on monthly return basis. ESLT was also a more risky investment than SP500 index as it's worst month in the last year, Mar 2018, returned -15.58% compared to -7.28% returned by SP500 index in Oct 2018. ESLT had a shorter streak of profitable months than SP500 index. It only went up in 4 straight months during the last year.

If all the economists were laid end to end, they'd never reach a conclusion.
-- George Bernard Shaw

ESLT 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 ESLT's volatility from 19 Sep, 2018 to 11 Oct, 2018. While there was a significant surge in the SP500 index's volatility from 25 Sep, 2018 to 29 Oct, 2018.

Advanced/professional short-term investors should note that ESLT 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.

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

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

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