Donning his customary bearish outfit, Albert Edwards of Société Générale, a favorite market strategist among Investment Postcards’ readers, said:

“After increasing our equity exposure at the end of October we believe that the market is set to quickly slide sharply towards our 500 target for the S&P 500.

“While economic data in developed economies increasingly reflect depression rather than a deep recession, the real surprise in 2009 may lie elsewhere. It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a re-run of the Great Depression.”

According to Jeffrey Hirsch (Stock Trader’s Almanac), the December Low Indicator says that should the Dow Jones Industrial Index close below its December low anytime during the first quarter, it is frequently an excellent warning sign. This came to pass on Tuesday when the Dow closed below its December low of 8th,149 (recorded on December 1st).

Also of concern to Hirsch is the January Barometer, stating “As January goes, so goes the year." Every down January since 1950 has been followed by a new or continuing bear market or a flat year. On Friday the S&P 500 closed at 832, 7.9% lower than the December 31st close.

From across the pond, David Fuller (Fullermoney) commented that one could not rule out an overcorrection by the S&P 500 to 600 (as suggested by Jeremy Grantham in his latest quarterly newsletter), however: 

“... the downside move to date is still quite overstretched relative to the 200-day moving average. Fundamentals will not determine the actual low, in my opinion, whether already seen or pending. That will be determined by sentiment and liquidity, as always. Currently, sentiment is diabolical but liquidity is increasingly abundant.

“From an investment perspective, my preferred strategy would be to nibble on high-quality equities with decent and well-covered yields.”

On the back of the bullion price increasing by 6.9%, the Gold Bugs Index (+10.6%) was one of the top-performing industry groups for the week. The venerable Richard Russell said:

“The [gold] market always does what it's supposed to, but never when. Is it ‘when time’ for gold? It looks like the long erratic correction in gold is over.

“Gold is pushing up consistently now - the first upside target is to better the 900 level which will take gold above the two preceding peaks. If gold can move above the 900 level (we're close), I think there is a good chance it will test the highs. Up until now, gold's progress has been halted, every advance corrected. Gold appears to advance more easily now and the gold stocks are going along with the bullion.”


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According to US Global Investors' Weekly Investor Alert, David Rosenberg of Merrill Lynch on Friday sent out a research note titled “The case for gold”, explaining that gold’s value is enhanced by declining bullion supply and increasing money supply.