{The Candlestick Proposal for an Ongoing Short Outlook in the S&P 600}

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How quickly time flashes by.  It is now more than  a year since the stock market posted a significant long-term High.  It was confirmed by a classically bearish Japanese Candlestick formation, and has been marked all the way down during the decline by a assemblage of very similar bearish formations.  The remarkable events attending the near-collapse of the entire national and world financial system over the last several weeks, resulting in enactment of bailout legislation, drove many frugal savers to a state of enormous worry about the value of, and prospects for, their hard-earned nest eggs.

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How unfortunate it is that so many good people have worked so hard all their working lives to invest something 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 unfortunate is that they have no comprehension of the defensive steps which they could have undertaken beginning in October 2007, and ought to be taking right now and into the foreseeable future.

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One must avoid becoming a “deer in the headlights.”  The Candlestick  formations which have emerged during the past several weeks reveal the gravity of this bear market, and the imperative need to take countervailing action so as to protect 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 market, promoted by respected firms.  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 structured to increase one dollar in value for every dollar by which the Dow Jones Industrial Average decreases in value.  Some of these 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 secular 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 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, by so doing, to completely offset the possibility of loss in a portfolio.  Certainly, any degree of offset would be a welcome development.  In addition, 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 discernable on price charts.  While a “Perpetual Short” program can be of great value in protecting the worth of one’s portfolio, skillful use of Candlestick analysis can also be very useful in identifying countertrends which can be harvested for gain in upward corrections.  Various methods of technical analysis are a great help in identifying the probable termination point of a countertrend rally and in pointing to a classic opportunity to “pounce on the bounce” for added profit to the downside.

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