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How quickly time does fly. It is now more than a year since the markets posted a major long-term Top. It was marked by a bearish Candlestick formation, and has been followed all the way down during the decline by a group of very similar bearish formations. The unprecedented events attending the near-collapse of the whole national financial system during the last several weeks, resulting in passage of bailout legislation, impelled many investors to a state of great concern about the worth of, and prospects for, their hard-earned savings.
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It is terribly unfortunate that so many good people have worked so hard all their working lives to save something for retirement, now to be faced with a serious decline in the worth of their stocks – and the prospect of much worse to come. What is even more unfortunate is that they have no understanding of the defensive measures which they could have taken beginning in October 2007, and ought to 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 Japanese Candlestick patterns which have emerged during the past several weeks continue to indicate the destructive power of this pervasive bear market, and the imperative need to compensate for it so as to defend the value of one’s portfolio.
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There is “insurance” available. It can be purchased 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, offered 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 – as an 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. Many of such 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 we are the unwilling victims of a long-running bear market which is just now gearing up for a devastating depression I am in favor of 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, this way, to completely offset the possibility of loss in an investor’s portfolio. Certainly, 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 extremely valuable in protecting the worth of one’s portfolio, skillful use of Candlestick analysis can also be extremely useful in identifying countertrends which can be harvested for profit in upward countertrend corrections. Various methods of technical analysis are a boon in spotlighting the likely termination point of a countertrend rally and in pointing to a clear opportunity to “pounce on the bounce” for enhanced profit as the market declines.
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