Many of us wonder if this pandemic outbreak of Covid-19 would result in a recession and a continued sell-down in the markets. The markets have already turned bearish when the S&P, Dow and the other major markets dropped 20% from its peak. The sharp sell-off was the fastest ever in Wall Street history. From its peak on 19 Feb 2020, the S&P 500 Index has declined almost 34% in just a month and then quickly climbed 17% over a week. Volatility has spiked and will likely remain in the near term. 

 

How long will this sell-off last and how much more can it drop?

That’s the million-dollar question! While analysts are trying to gauge the impact of the damage that Covid-19 would bring upon the global economy, many investors are selling ahead, worried that the damage could be huge and would bring upon a recession, globally. Some may even argue that a recession is totally inevitable. No one knows the extent of the impact at this current juncture and do not want to get trapped if everyone else is panic selling!

If history is any guide, any bear markets that is recessionary will be as long as 29 months averagely, with the shortest being 17 months and the longest being 61 months. As for the average damage, you may wonder, it’s a 49% decline from its peak (refer to Table 1). Now that the S&P 500 has only dropped 22%, looks like there could still be a long way to go. Oh, boy…

Table 1: Historical Bear Markets in the US

Now, these are just historical numbers and we are not giving any prediction as to the bottom of the market. On the contrary, no analyst or financial guru or fund manager could accurately predict the bottom and most importantly investors should have a plan to navigate this volatile market.

 

If you fail to plan, you are planning to fail!

Whether you’ve sold your investments or are still holding them for the long term, there is no right or wrong answer, so long as it is within your risk appetite. There are many different ways to navigate the current market condition and you may well identify yourself with one of them:

No matter who you identify yourself with, there is no doubt that the most important thing is not to panic, devise a plan and stick to it.

 

How your portfolio can benefit from Leveraged and Inverse ETFs in this current market condition

First off, Leveraged and Inverse ETFs are sophisticated investment tool that are not designed for the weak-hearted. So, if you have a low risk tolerance, please stay away from such investment products. For those of you who may have a higher risk tolerance and wondering what you may do to enhance your return at this juncture, you may consider the following strategies.

  • MARKETS WILL CONTINUE TO DROP ANOTHER 10% - 20% FROM HERE IN THE NEXT FEW MONTHS
    • SUGGESTION:Invest into an Inverse Exchange-Traded Fund that provides you an inverse exposure where you make gains from market decline
    • BEWARE: If your view is wrong and the market trend sideways or increases from here, then you would suffer a loss.

  • MARKETS WILL TRADE SIDEWAYS FROM NOW AND I PLAN TO BUY AND HOLD MY INVESTMENTS
    • SUGGESTION: Cash is King! In sideways market, Leveraged and Inverse products may not be suitable as it may result in significant losses.

  • MARKETS WILL TRADE SIDEWAYS FROM NOW AND I PLAN TO TRADE THE SHORT-TERM VOLATILITY
    • SUGGESTION: You may use charts to aid you in deciding when to go long and short. When an index reaches a support level where the index may potentially advance in the short-term, use a Leveraged Exchange-Traded Fund to go long. When the index reaches the resistance level, close your long position and use an Inverse Exchange-Traded Fund to go short instead! Eat, sleep and repeat.
    • BEWARE: While it sounds easy to implement, the index may break below its support or above its resistance level, of which you should have a stop-loss strategy in place. 

  • MARKET IS CHEAP NOW AND I’D LIKE TO START INVESTING FOR THE LONG TERM
    • SUGGESTION: You may consider using a Leveraged Exchange-Traded Fund to start building your position using less capital. You may want to consider investing regularly as none of us knows when the bottom will surface.
    • BEWARE: If the market trend sideways or decline further from here, then you would suffer greater loss.

 

There is no one size fits all strategy

So, we’ve explored some of the options available here and there is really no single solution for everyone. We all have differing risk tolerance and should always strive to find investment products that best suit us. If you have not taken a look at our Leveraged and Inverse Exchange-Traded Funds, it’s time to learn about them. Here are some snapshot on how the various Leveraged and Inverse Exchange-Traded Funds have performed over the past one month.

 

Learn more about TradePlus ETFs

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