Candlesticks as Weapons of Defense

>apparently it overburdens the system so that
The Candlestick patterns in combination withI’m not able to demonstrate it with a chart. 
"Western" indicators and Inverse Funds provide aText will have to do.
powerful trio for helping the investor to protect hisA pretty fair “Evening Star” Japanese Candlestick
portfolio.pattern arose in the NASDAQ 100 about the middle of
Candlesticks as Weapons of DefenseAugust.  The Evening Star is a bearish reversal
A gracious hostess will decorate her dining table withpattern.  This formation is identified by a tall (relatively,
finery, the best in the house.  If she is fortunatein this case) white candle, followed by a smaller candle,
enough to have good chinaware and sterling silverand then by a tall black candle.  The bearish
tableware, they will be set in place for her guests. implications of the Evening Star were fulfilled: prices
There will be candles, of course; and the candlehave declined almost without interruption since the
holders may well be of silver.  Even the candlespattern formed.  If investors who were riding a
themselves may be of silver.substantial price rise had heeded that Evening Star
How docile, sumptuous, and elegant the scene: it couldwarning back in the middle of August and shorted the
be straight out of a 1930’s Hollywood movie. Index in some way, they would have been able to
Perhaps the candlesticks are the ultimate expressiondefend their existing portfolio position or, perhaps even
of refinement.better, they would have reversed course and become
Have you ever heard of Japanese Candlesticks? positively Short the Index.
You can’t put them on your dining room table,The second lesson that I would like to draw has to do
because they exist only on paper or on your computerwith a very tall black candle which represents price
screen.  They’re a method of displaying stockaction yesterday, September 29, which was the day
prices which was invented centuries ago by aof the large falloff after the bailout bill failed to pass in
Japanese rice trader, who found them to be verythe House of Representatives.  Prices in the
useful in revealing the trading psychology of hisNASDAQ 100 fell 176 points yesterday, a 10.5% decline
competitors, thereby giving him an advantage.  Thein one day.  However, the share value of the Rydex
use of the Candlesticks carries over today to trading inInverse NASDAQ 100 Fund rose 9.10% yesterday!  (I
all financial markets, and their particular ability tohave no connection with Rydex).
forecast major reversals of price trend is becomingThat’s not an exact correlation, to be sure. 
more generally recognized and appreciated.  TheyThe differential may be partly due to the present
are especially powerful when used in combination withrestriction on short sales.
the so-called “Western” indicators to whichEven so, had an investor bought shares in the Rydex
investors and traders have become accustomed.Inverse NASDAQ 100 Fund last Friday, September 26,
The Candlesticks can serve as weapons of financialas of market closing yesterday he or she would have
defense when they are used in combination with thesubstantially neutralized a loss of his or her own
indicators and also with Inverse Mutual Funds andyesterday in the NASDAQ 100 Index, and indirectly in
Inverse Exchange-Traded Funds.  Many investors areits components.  That’s a defensive weapon
fixated on the idea that money can be made in theat work!
stock market only when prices rise.  Brokers’Had he or she been invested in the NASDAQ 100
mindsets, in particular, are geared to that concept. before the close of trading on Friday, he or she could
Nothing could be further from the truth.have used the Rydex Inverse NASDAQ 100 Fund as
Inverse funds enjoy wide acceptance and are tradedan offensive weapon to garner absolute profits.
in large volume.  The basic premise which underliesThe moral of the story is that a knowledgeable
them is that they gain in value when the stock marketinvestor will combine available tools into a powerful
declines.  A direct-ratio inverse fund which is tied totrading approach: the Japanese Candlesticks to identify
the S&P 500 Index, for example, will seek to gain onetrend reversals as they are happening or about to
dollar in value for every dollar of decline in the S&Pappear; the Indicators to enhance the accuracy of the
500.  A “geared,” or “leveraged,” fund of theCandles; and Inverse Funds in recognition of the fact
same type will seek to gain two dollars in value forthat portfolio defense — and profit for
every dollar of decline in the S&P 500.profit’s sake - are readily available through the
I would like to show you these two concepts, butuse of Inverse Funds.