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How fast time flies. It is now more than a year since the market posted a trend-changing long-term High. It was evidenced by a bearish Candlestick pattern, and has been characterized all the way down during the decline by a repetition of similar bearish patterns. The disasters attending the near-collapse of the whole national financial system during the past several weeks, leading up to enactment of bailout legislation on a scale never before imagined or seen, drove many investors to a state of deep concern about the worth of, and prospects for, their hard-earned savings.
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How unfortunate it is that so many people have worked so hard for so many years to put away a meaningful sum for retirement, only to be faced with a massive diminution of the worth of their shares of stock – and the likelihood of worse to come. What is even more unhappily the case is that they have no knowledge of the protective steps which they could have undertaken beginning in the Fall and Winter of 2007, and ought to be taking right now and well into the future.
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Every investor must avoid becoming a “deer in the headlights.” The Candlestick formations which have emerged during the past several weeks indicate the destructive power of this bear market, and the imperative need to take action so as to protect the value of the investor’s portfolio.
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There is “insurance” available to accomplish that result. It 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 open market, promoted by respected companies. Their stated goal is to increase in value when the particular Index to which they are geared 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 by one dollar in value for every dollar by which the S&P 600 decreases in value. Some of such funds are leveraged, for example on a two-for-one basis.
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I believe that the country is ensnared in a long-running bear market which is just now gearing up for a devastating depression I favor the idea that every investor should create and maintain a “Perpetual 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, by so doing, to totally offset the possibility of loss in a portfolio. Certainly, any degree of offset would be welcome. On top of that, it is possible to make an absolute profit, as well.
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Stock and Index prices move in waves, which are clearly observable on price charts. While a ”Constant Short” regime can be of extreme value in protecting the worth of an investor’s portfolio, skillful use of Candlestick technical analysis can also be very useful in identifying countertrends which can be harvested for gain in upward countertrend corrections in a bear market. Various methods of technical analysis can also be a boon in identifying the likely end of a countertrend rally and in pointing to a clear opportunity to “pounce on the bounce” for added profit to the downside.
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