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How quickly time does fly. It is now more than a year since the stock market posted a trend-changing long-term High. It was spotlighted by a very bearish Candlestick formation, and has been characterized all the way down during the decline by a group of nearly identical bearish formations. The events attending the near-collapse of the whole national and world financial system over the past several weeks, resulting in enactment of bailout legislation, impelled many shareholders to a state of deep concern about the value of, and prospects for, their hard-earned nest eggs.
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How unfortunate it is that such a multitude of people have labored assiduously all their lives to put away a meaningful sum for retirement, now to be faced with a massive diminution of the market value of their stocks – and the prospect of much 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 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 Candlestick formations which have emerged during the past several weeks indicate the wealth-destroying power of this bear market, and the urgent requirement to take countervailing action in order to defend the value of the investor’s holdings.
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There is “insurance” available to accomplish that result. It is found 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 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 work on a one-to-one basis – as an example, a particular Exchange-Traded Fund might be so structured as to increase by one dollar in value for every dollar by which the NASDAQ 100 decreases in value. Many of such funds are leveraged, say 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 just now gearing up for a devastating depression the likes of which have not been seen since the 1930’s. I am in favor of the principle 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 an investor’s 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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The prices of all financial instruments move in waves, which are clearly observable on price charts. While a ”Constant Short” program can be extremely valuable in protecting the worth of one’s portfolio, deft use of Candlestick technical analysis can also be very useful in the identification of countertrends to be harvested for profit in upward countertrend corrections in a bear market. Various methods of technical analysis are a boon in identifying the probable termination point of a countertrend rally and in pinpointing a unusual opportunity to “pounce on the bounce” for added profit to the downside.
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