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How fast time flies. It is now more than a year since the markets posted a important long-term Top. It was spotlighted by a very bearish Candlestick pattern, and has been followed all the way down during the cascade by a group of very similar bearish formations. The failures attending the near-collapse of the entire national financial system during the last several weeks, leading up to enactment of bailout legislation, reduced many frugal savers to a state of great concern about the value of, and prospects for, their hard-earned nest eggs.
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How unfortunate it is that such a multitude of people have worked so hard all their lives to save a meaningful sum for their “golden years”, now to be faced with a serious decline in the worth of their shares of stock – and the prospect of much worse to come. What is even more unhappily the case is that they have no understanding of the protective measures which they could have taken beginning in the Fall and Winter of 2007, and should be taking right now and well into the future.
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There is no need to be a “deer in the headlights.” The Japanese Candlestick formations which have emerged during the past several weeks continue to indicate the viciousness of this secular bear market, and the absolute need to compensate for it so as to defend the value of the investor’s holdings.
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There is “insurance” available. It is found in the form of Inverse Stock Index Funds and Inverse Stock Index Exchange-Traded Funds. There are many of them available on the open market, promoted by respected and stable firms. Their stated goal is to increase in value when the particular Index to which they are tied decreases in value. Some of them work on a one-to-one basis – for example, a given Exchange-Traded Fund might be structured to increase one dollar in value for every dollar by which the Dow Jones Industrial Average decreases in value. Some of such funds are leveraged, say on a two-for-one basis.
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More and more competent observers are coming to believe that we are in a long-running bear market which is just now gearing up for a devastating depression I am in favor of the principle that every investor should create and maintain a ”Constant Short” position, using either an Inverse Stock Mutual Fund or an Inverse Exchange-Traded Fund as the vehicle; and that he or she should be depositing funds into that “insurance plan” consistently, on a regular basis. It is even possible, by so doing, to totally offset the possibility of loss in an investor’s portfolio. surely, any degree of offset would be welcome. Addtionally, it is possible to make an absolute profit, too.
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Stock and Index prices move in waves, which are clearly visible on price charts. While a ”Constant Short” plan can be of extreme value in protecting the worth of one’s portfolio, deft use of Candlestick analysis can also be extremely useful in the identification of countertrends which can be harvested for profit in upward countertrend corrections. Various methods of technical analysis are a great help in identifying the probable end of a countertrend rally and in pinpointing a clear opportunity to “pounce on the bounce” for additional profit to the downside.
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