MTH investors looking to exit as part of sectoral rotation
11 Dec, 201813 min read
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MERITAGE HOMES CORP was among the worst performers today. It delivered -0.11% to close at 36.92. During the last week it delivered -0.27% and saw a maximum drawdown of -2.64% before bouncing back.
Buy-and-Hold investors in MTH experienced a maximum drawdown of -28.09% over the last three months. It delivered -16.09% during this strong bearish trending period. There were no long signals during this period, where the short signal generated good profits of +16.09% for investors.
MTH has been outperforming the SP500 index in recent time. It showed significant underperformance (compared to the SP500 index) from 30 Nov, 2017 to 22 Oct, 2018. Over the last 2 years 11 months and 7 days, MTH underperformed the SP500 index on 47% days. Which indicates that on days MTH underperforms the SP500 index, it's performance is marginally worse than on the days it outperforms the SP500 index.
During the last three months MTH was mostly loss making and delivered on average -0.25% per day. It's best return during this period (of +9.49%) was on Thursday, 25 Oct, 2018. While it's worst loss in the same period (of -4.15%) was on Monday, 29 Oct, 2018. The longest stort-term trends during this period were 5 profitable and losing days. The bullish trend (which returned +9.7%) started on 30 Oct, 2018 and went on till 5 Nov, 2018 while the bearish trend (which returned -7.07%) started on 18 Sep, 2018 and went on till 24 Sep, 2018.
The last 12 months saw MTH's investors making profits in 4 months and incurring losses in 8 months. MTH was less consistent in delivering monthly returs than SP500 index. MTH was also a more risky investment than SP500 index as it's worst month in the last year, Feb 2018, returned -10.64% compared to -7.28% returned by SP500 index in Oct 2018. MTH had a shorter streak of profitable months than SP500 index. It only went up in 3 straight months during the last year.
"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.
MTH is currently seeing overall fall in volatility. In comparison, the SP500 index is seeing increase in volatility. During the last three months, there was a significant surge in MTH's volatility from 18 Sep, 2018 to 30 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 MTH has significant positive skewness in it's return distribution. This indicates that investors can expect MTH to recover from drawdowns quickly. Which makes MTH a good candidate for investing on short-term bullish trends or even counter-trends hoping for a pull-back.
SP500 index has more chance of extreme outcomes than MTH. Therefore, SP500 must receive a lower allocation than MTH in your portfolio. SP500 index usually has shorter drawdown period than MTH.
On a general note (since you are interested in MTH), TNDM has performed really well this year and deserves to be closely tracked for investment opportunities.
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