13 Jan How Will Systems and High-Yield Do in a Market Downturn?
How Will Systems and High-Yield Do in a Market Downturn?
Jan. 13, 2025
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Is the party over?
Has the inevitable stock market crash finally arrived?
Maybe.
But is it really something to worry about?
For example, trend following loves severe corrections and Bear Markets. Here’s how Purple Valley Capital (pure trend following on steroids) did during the Bear Market of 2022):
It made over 26%. That’s not scary.
And the Performance Page Portfolio didn’t have a problem with 2022 either. Here’s how the PPP did in 2022:
It was up over $39k trading 1 contract on a hypothetical $57k account.
So, if you’re a trend follower or someone who uses systems to trade pullbacks and breakouts on the E-Mini (ES) and Gold, there doesn’t seem to be a lot to worry about.
But what if you’re a long-term stock trader?
Or worse, what if you’re a long-term high-yield income trader?
If you’re a long-term stock trader, unfortunately, you’re just out of luck. Downturns are part of doing business and long-term index-funders will get hammered in a Bear Market like they always do. No getting around it.
What about high-yield, though? How will that “risky” stuff do during a meltdown?
It will behave like everything else.
If the stock market chart is going down, high-yield charts are going down, too.
But here’s the thing.
High-yield charts may go down, but the income will go up, or remain viable.
While we don’t yet have a ton of data on high-yield in corrections, we do have QYLD. That’s the original “high-yield” ETF and it’s been around since 2014.
With QYLD, we can see how high-income might do when the market is tanking.
Let’s take a look.
Keep in mind (and most people don’t), the only reason to buy high-yield is to receive the yield. Thus, the only thing that matters is income.
Does the income keep coming in?
If so, mission accomplished. Here are the income amounts on QYLD since 2014 if we reinvested:
There was a slight lowering of income during a bad Bear Market but it still did its job quite well. And, of course, the income started rising again as the market recovered.
What if we didn’t reinvest? What if we started taking all the income back in 2014 and kept at it until today?
Here are those income amounts:
Again, the income fell but not by much. It’s produced a nice amount of income all along.
While not my favorite choice for income (not by a mile), QYLD has been cranking out distributions at a pretty reliable rate–whether it’s a Bull or Bear Market.
A long-term income-taker from QYLD probably wouldn’t have even known it was a downturn unless they watched the news every day.
If you study history or use technical analysis, a Bear Market seems unavoidable in the near future.
But the real question is:
Does it matter?
Talk to you soon.
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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.