Anyone following US stocks is likely to have severe whiplash by now. This week has seen some of the most dramatic swings in history.

Eric Roseman says we are approaching the low point in the crisis, although there will likely be more selling ahead.

The most important thing right now is that investors take action to protect their portfolios. Eric recommends a reverse-index ETF to reduce downside risk on equities.

This from The Sovereign Society:

Any way you slice it this is serious bear market territory. In fact, you have to go all the way back to the market carnage of 1974 to find anything like it.

In some ways, this crisis is worse and more on par with the 1930s. It’s definitely a fair comparison as central banks, mainly the Fed, launch an all-out assault on falling prices. The aftermath that’s still hammering the financial system is highly deflationary as the number of busted credits, failed institutions and unemployed all rise.

Let me just run some incredible market numbers by you. These numbers suggest we’re close to either a bear market bottom or we’re sitting at the cusp of a bear market rally – the third such suckers’ rally since September 2007.

Since 1960, the average bear market has lasted 14 months and has taken stocks down about 31% before bottoming, according to Ned Davis Research. Currently, this is the 11th month of the bear market and stocks are down 23% from their highs.

So there’s probably more selling coming our way, but I think we’re approaching the low point of this crisis. Many stocks, which have nothing to do with sub-prime debt, credit problems or financing issues have been savagely hit.

Big bargains are out there.

But here’s the problem: The market has completely broken down. The NYSE Advance-Decline line has collapsed with just 174 stocks rising versus a whopping 3,096 stocks dropping. On Monday, 792 stocks hit new lows. These are horrid numbers and strongly suggest this market is oversold.

Grim Outlook Breaks the Market

How to Fix Your Portfolio in This Broken Market

If you have a traditional portfolio that invests in stocks and bonds, then you should load up on cash. If you don’t buy alternative investments like hedge funds or managed futures, then a reverse-index fund or ETF is a MUST to protect your stock exposure.

Investment portfolios should not have more than 20% invested in common stocks at this point. Despite huge values in many sectors (utilities, oil stocks, gold mining, oil services) investors are being penalized for bargain-hunting because the advance-decline is busted.

The odds of making money in this market are almost impossible if you just buy and hold stocks.

In addition to low market exposure, I’d hold a 10-20% position in a reverse-index fund, depending on your appetite for risk. Essentially, if you really like the stocks you own now and you don’t want to sell them then make sure to cover your exposure.

As a rule, if I’m holding 20% in stocks, then my reverse-index exposure is about 20% or market-neutral. I just don’t want to lose money.

About the only good thing I can say about 2008 is that we’re a little more than three months away from 2009 . I can’t remember the last time I was this anxious to end a year.

Source: It’s Rough Out There: How to Protect Your Holdings in the Worst Market Since 1974