{The Candlestick Case for a Permanent Short in the NASDAQ 100}
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How speedily time does fly. It is now over a year since the stock market posted a important long-term Top. It was marked by a bearish Japanese Candlestick pattern, and has been marked all the way down during the decline by a group of similar bearish formations. The forced takeovers attending the near-collapse of the entire national financial system during the past several weeks, leading up to enactment of bailout legislation on a scale never before imagined or seen, drove many stockholders 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 such a multitude of people have worked so hard all their working lives to save a meaningful sum for their “golden years”, only to be faced with a serious decline in the value of their holdings – and the likelihood of much worse to come. What is even more unhappily the case is that they have no knowledge of the defensive measures which they could have taken beginning in the Fall and Winter of 2007, and ought to be taking right now and into the 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 strength of this pervasive bear market, and the urgent requirement to compensate for it in order to protect the value of the investor’s portfolio.
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There is “insurance” to be had. The “insurance” can be purchased 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, offered by respected companies. Their stated goal is to increase in value when the particular Index to which they are tied decreases in value. Many of them work on a one-to-one basis – for example, a particular Exchange-Traded Fund might be structured to increase by one dollar in value for every dollar by which the S&P 600 decreases in value. Some of these funds are leveraged, for example on a two-for-one basis.
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I believe that the country is in a secular bear market which is only now gearing up for a devastating recession 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 vehicle; 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 a 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 observable on price charts. While a ”Constant Short” program can be extremely valuable in protecting the worth of an investor’s portfolio, deft use of Candlestick analysis can also be extremely useful in identifying countertrends which can be harvested for gain in upward corrections. Various methods of technical analysis are a great help in spotlighting the probable end of a countertrend rally and in pointing to a unusual opportunity to “pounce on the bounce” for enhanced profit to the downside.
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