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How speedily time flashes by. It is now over a year since the stock markets posted a major long-term High. It was graced by a very bearish Japanese Candlestick formation, and has been followed all the way down during the decline by a assemblage of nearly identical bearish formations. The unprecedented events attending the near-collapse of the whole national and world financial system over the last several weeks, resulting in enactment of bailout legislation on a scale never before imagined or seen, reduced many shareholders to a state of enormous worry 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 lives to invest a meaningful sum for retirement, only to be faced with a serious decline in the worth of their stocks – and the prospect of worse to come. What is even more unhappily the case is that they have no appreciation 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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Every investor must avoid becoming a “deer in the headlights.” The Candlestick formations which have formed during the past several weeks indicate the wealth-destroying power of this bear market, and the urgent requirement to compensate for it in order to defend the value of one’s holdings.
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There is “insurance” available. The “insurance” is 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, sold 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. Many of them work 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 NASDAQ 100 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 we are in a secular bear market which is only now gearing up for a devastating recession I favor 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 totally offset the possibility of loss in an investor’s portfolio. surely, any degree of offset would be welcome. 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 discernable on price charts. While a “Perpetual Short” plan can be of extreme value in protecting the worth of one’s portfolio, deft use of Japanese Candlestick analysis can also be extremely useful in identifying countertrends to be harvested for profit in upward countertrend corrections. Various methods of technical analysis are a great help in spotlighting the likely termination point of a countertrend rally and in pointing to a clear-cut opportunity to “pounce on the bounce” for added profit as the market declines.
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