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How quickly time does fly. It is now over a year since the stock markets posted a key long-term Top. It was spotlighted by a very bearish Japanese Candlestick formation, and has been followed all the way down during the cascade by a repetition of quite similar bearish patterns. The financial implosions attending the near-collapse of the entire national financial system during the past several weeks, resulting in enactment of bailout legislation, drove many shareholders to a state of great concern about the worth of, and prospects for, their hard-earned savings.
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How unfortunate it is that so many good people have labored assiduously for so many years to set aside something for old age, only to be faced with a massive diminution of 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 appreciation of the protective measures which they could have undertaken beginning in the Fall and Winter of 2007, and should be taking now and well into the foreseeable future.
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Every investor must avoid becoming a “deer in the headlights.” The Candlestick formations which have formed during the past several weeks continue to indicate the strength of this bear market, and the need to institute counter-measures so as to defend the value of the investor’s holdings.
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There is “insurance” available. 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 companies. 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 operate on a one-to-one basis – as an example, a given Exchange-Traded Fund might be so structured as to increase one dollar in value for every dollar by which the Russell 2000 decreases in value. Many of these funds are leveraged, say on a two-for-one basis.
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I believe that the country is in a long-running bear market which is only 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 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 an investor’s portfolio. surely, any degree of offset would be a welcome development. In addition, 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 observable on price charts. While a “Perpetual Short” program can be of great value in protecting the worth of an investor’s portfolio, skillful use of Japanese Candlestick technical analysis can also be extremely useful in the identification of countertrends to be harvested for gain in upward countertrend corrections in a secular 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 unusual opportunity to “pounce on the bounce” for additional profit as the market declines.
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