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How quickly time does fly. It is now more than a year since the markets posted a meaningful long-term Top. It was marked by a very bearish Japanese Candlestick pattern, and has been attended all the way down during the decline by a group of similar bearish formations. The forced takeovers attending the near-collapse of the total national financial system over the past several weeks, resulting in passage of bailout legislation on a scale never before imagined or seen, reduced many shareholders to a state of great concern about the worth of, and prospects for, their hard-earned nest eggs.
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How unfortunate it is that so many people have worked so hard all their lives to invest something for retirement, only to be faced with a massive diminution of the worth of their shares of stock – and the likelihood of much worse to come. What is even more unfortunate is that they have no appreciation of the protective measures which they could have undertaken beginning in October 2007, and should be taking right now and into the foreseeable future.
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There is no need to be a “deer in the headlights.” The Japanese Candlestick patterns which have formed during the past several weeks indicate the destructiveness of this pervasive bear market, and the absolute need to take countervailing action in order to defend the value of the investor’s holdings.
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There is “insurance” available. The “insurance” can be purchased in the form of Inverse Stock Index Funds and Inverse Stock Index Exchange-Traded Funds. There is a multitude of them available on the market, sold by respected and stable companies. The goal of such funds is to increase in value when the particular Index to which they are tied decreases in value. Some of them work on an unleverged basis – for example, a particular Exchange-Traded Fund might be so structured as to increase by one dollar in value for every dollar by which the S&P 600 decreases in value. Some of these funds are leveraged, for example on a two-for-one basis.
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More and more competent observers are coming to believe that the country is ensnared in a long-running bear market which is only now gearing up for a devastating recession In principle, I propose 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 means by which to accomplish that end; and that he or she should be depositing funds into that “insurance plan” consistently, on a regular basis. It is even possible, this way, to totally offset the possibility of loss in a portfolio. surely, any degree of offset would be a welcome development. On top of that, it is possible to make an absolute profit, too.
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Stock and Index prices move in waves, which are clearly observable on price charts. While a “Perpetual Short” program can be of extreme value in protecting the worth of an investor’s portfolio, deft use of Japanese Candlestick analysis can also be extremely useful in the identification of countertrends which can be harvested for profit in upward corrections. Various methods of technical analysis are a boon in spotlighting the probable termination point of a countertrend rally and in pointing to a particular opportunity to “pounce on the bounce” for enhanced profit to the downside.
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