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How fast time flies. It is now over a year since the stock markets posted a important long-term High. It was evidenced by a very bearish Japanese Candlestick pattern, and has been followed all the way down during the decline by a repetition of very similar bearish patterns. The forced takeovers attending the near-collapse of the entire national and world financial system over the past several weeks, leading up to passage of bailout legislation, drove many investors 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 such a multitude of good people have worked so hard for so many years to put away something for old age, only to be faced with a serious decline in the value of their holdings – and the prospect of worse to come. What is even more unfortunate is that they have no understanding of the defensive 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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Every investor must avoid becoming a “deer in the headlights.” The Japanese Candlestick formations which have formed during the past several weeks reveal the seriousness and power of this bear market, and the imperative need to take action in order to defend the value of the investor’s portfolio.
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There is “insurance” to be had. It lies 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, offered by stable firms. The goal of such funds is to increase in value when the particular Index to which they are geared decreases in value. Many of them work on an unleverged basis – for example, a given Exchange-Traded Fund might be structured to increase 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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I believe that we are the unwilling victims of a secular bear market which is only now gearing up for a devastating recession I am in favor of the idea 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 completely 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, as well.
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Stock and Index prices move in waves, which are clearly visible on price charts. While a “Perpetual Short” plan can be of great value in protecting the worth of an investor’s portfolio, deft use of Candlestick analysis can also be very useful in identifying countertrends which can be harvested for profit in upward countertrend corrections in a bear market. Various methods of technical analysis can also be a great help in identifying the likely end of a countertrend rally and in pinpointing a rare opportunity to “pounce on the bounce” for additional profit to the downside.
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