{The Japanese Candlestick Rationale for an Ongoing Short Outlook in the S&P 600}
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How speedily time does fly. It is now over a year since the markets posted a significant long-term Top. It was spotlighted by a bearish Candlestick formation, and has been attended all the way down during the cascade by a series of quite similar bearish patterns. The unprecedented events attending the near-collapse of the total national and world financial system over the past several weeks, resulting in passage of bailout legislation on a scale never before imagined or seen, reduced many frugal savers to a state of deep 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 labored assiduously all their lives to invest a meaningful sum for old age, only to be faced with a serious decline in the market value of their shares of stock – and the prospect of worse to come. What is even more unfortunate is that they have no understanding of the protective steps which they could have undertaken beginning in the Fall and Winter of 2007, and should be taking right now and well into the foreseeable future.
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There is no need to be a “deer in the headlights.” The Candlestick formations which have formed during the past several weeks continue to indicate the seriousness and power of this bear market, and the imperative need to take action so as to protect the value of one’s holdings.
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There is “insurance” available to accomplish that result. The “insurance” can be bought 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, sold 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 operate on a one-to-one 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. Many 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 in a secular bear market which is just 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, by so doing, to totally offset the possibility of loss in an investor’s portfolio. Certainly, 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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The prices of all financial instruments move in waves, which are clearly visible on price charts. While a “Perpetual Short” program can be extremely valuable in protecting the worth of an investor’s portfolio, deft use of Candlestick technical analysis can also be very useful in the identification of countertrends which can be harvested for gain in upward countertrend corrections. Various methods of technical analysis can also be a boon in identifying the likely end of a countertrend rally and in pinpointing a special opportunity to “pounce on the bounce” for additional profit as the market declines.
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