Monday, September 26, 2005



Last week the key stock market indicator that the Author tracks reversed into negative territory. It is the New York Stock Exchange Bullish Percentage. This indicator is one of many maintained by Dorsey, Wright & Associates.[1] The OTC (NASDAQ) Bullish Percent is till in positive territory.

A full description of the Dorsey Wright methodology is beyond the scope of this post. Further, the Author only provides general market and investment advice and does not recommend individual investments and investment services. Until they want to pay him to shill for them!

The author does discuss general investment categories such as ETFs (Exchange-Traded Funds) and REITS (Real Estate Investment Trusts). The Author has occasionally mentioned inverse funds as a way to generate positive returns in falling markets. Inverse funds work this way. They move inversely to the market. For example, if one owns a fund that is inverse to the S & P 500, if the S & P 500 falls 2%, the inverse fund will rise by 2%.[2] But you get the good with the bad. If the S & P rises by 2%, the inverse fund falls by 2%. There are also 200% inverse funds, a way to leverage your investment. With these funds, if the S & p is down 2%, the inverse is up 4%. And vice-versa.

The Rydex family of funds has several inverse funds and 200% inverse funds. But consistent with the Author’s policy, he does not recommend them. Do the research yourself and pick what is right for your portfolio.[3]

For reasons the author cannot understand[4], many investors are reluctant to short stocks or the market. Some see this strategy as too “risky”. But if one understands risk properly, there is far less risk in pursuing the correct investment strategy than holding falling investments in falling markets.

Getting By in the Desert of the Real!

[1] NOTE: This should not be interpreted as a recommendation of DWA’s services. Investors should carefully examine all investment strategies to determine which will fit their individual need.
[2] These funds do this by short strategies, option strategies, swaps and other mechanisms. Trust the author, they work as advertised.
[3] IMPORANT DISCLAIMER: This information is offered for informational purposes only. Sources of information provided are believed to be reliable, but are not guaranteed to be complete or without error. Opinions and suggestions are provided with the understanding that readers acting on information contained herein assume all risks involved. The author may or may not buy or sell securities discussed in this newsletter.

[4] Well, the Author does understand, but decorum and his gentle nature restrain him from calling fellow investors uninformed, unsophisticated, or downright idiots.


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