Candlesticks Turn Bright Red for the Stock Market

The clock is running out. There is no time to lose in putting up the "hurricane shutters," because a whirlwind of stock price declines is heading our way.

In recent days, some investors have remained fixated on good profit reports from a few major companies, in the hope that they signal a turnaround and a new glory day for stock prices. Hope springs eternal. Nevertheless, several banks have reported still more necessary set-asides for anticipated losses stemming from the subprime mortgage debacle, and are seeking new capital. Investors have also been avoiding growing evidence that the real estate market is far from bottoming-out; the labor market is declining; and that certain companies which have "made their profit targets" have made their numbers only after the profit projections had already been lowered.

Investors have also kept their eyes away from the Silver market and from the S&P SmallCap 600 stock index. This is a mistake, because the Silver market historically has been a good predictor of the business cycle and because the "600" has often led the stock market, whether to the upside or to the downside. As it happens, Silver prices topped and rolled over last October, and are in the first stages of a substantial selloff; and the "600" is showing signs of even less vitality than the stock market in general.

The Japanese Candlestick patterns in the Dow Industrials and in the S&P 500 and 100 over the past few days display a confirmed "Hanging Man" pattern, which is bearish. True, this is not a perfect or classic Candlesticks "Hanging Man," but it is clear enough to warrant reliance upon it. Certainly, prudence would at least dictate that attention should be paid and that appropriate measures should be taken to limit one's exposure to a downdraft in stock and index prices.

What should the prudent investor do? First, all questionable securities should be expunged from one's portfolio. Cash should be nurtured and safeguarded. Sovereign very short-term debt of the United States, Canada, Australia, Switzerland, the UK, and Singapore would appear to be among the top choices for safety of capital. Next, the investor should take advantage of various means to capture profits in a declining stock market, whether simply by way of offsetting losses in otherwise top-drawer securities or with the thought in mind of profit for its own sake. There are many legitimate devices available in the USA market to accomplish just such a program - inverse mutual funds and inverse exchange-traded funds, for example.

This is no time to procrastinate. The winds are coming our way. Better to be safe than sorry. Convert bad apples to cash, keep the cash safe, take positive action in anticipation of a stock market decline, and sleep at night.