As part of my daily routine, I publish all my reading (including snippets from other well-known commentators) in an Internet newspaper, “Investment Postcards Daily”. Click here to read the latest edition of the paper.

The newspaper’s subscription is separate from that of the “Investment Postcards from Cape Town” blog. To ensure you receive daily alerts of the updated paper, click here and then subscribe for free by clicking on “Subscribe” (top right of newspaper, just below my photo) or by following me on twitter (click here).

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Helen Zhu, chief China equity strategist of Goldman Sachs, believes the mainland will see policy normalization in 2012. In light of that, she reveals how best to play the China story.

Source: CNBC, January 29, 2012.

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Don Coxe has updated his popular webcast on Friday, January 27, 2012 – good news for his followers. You can access the recording here or from the sidebar of the Investment Postcards site (the column on the right-hand side) by clicking on Don’s photograph.

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Adam Hewison, charting strategist of INO/Market Club, brings you another free edition of his invaluable service of daily technical market updates. These analyses give you an overall perspective of market conditions, highlight a few key movers, and discuss how current events are affecting investment strategy.

These short videos are great tools for keeping one’s finger on the pulse and timing the markets. I have personally been using the INO/Market Club software for quite a while and find it extremely useful. You can test the tools out for yourself by clicking click.

Click the image below to hear Adam’s latest views on gold, silver, the US Dollar Index, the CRB Index, crude oil and the S&P 500 Index. You can also click here to have an instant analysis of any ticker symbol in your portfolio performed by INO.

Source: INO/Market Club, January 27 2011.

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Marc Faber, publisher of the Gloom Boom & Doom Report, talks about the outlook for stocks versus bonds and his investment strategy.

Source: Bloomberg, January 20, 2012.

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The article below is a guest contribution by Guy Lerner, writer of the Technical Take blog.

The “dumb money” indicator has become extremely bullish (bear signal), and this is what one would expect with rising prices. The higher prices go the more bulls that are recruited. But is it the end of the road for the rally? Not necessarily so. In 1995, 2003, 2009, and Q4 2010/Q1 2011 we saw the phenomenon that I have dubbed “it takes bulls to make a bull market”. It is a market characterized by rising prices and excessive bullishness. In the case of 1995, 2003, 2009, the excessive bullishness and multi-month rally seem to be warranted as the markets were bouncing back from steep losses or a prolong period of consolidation (1995). The Q4 2010/ Q1 2011 version of this phenomenon was a QE2 induced feeding frenzy. With investors taking their cues from the Federal Reserve and European Central Bank, the current market environment resembles Q4 2010/ Q1 2011. For now, we need to respect this dynamic as we could be witnessing another melt up. The bulls have the ball in their court and are on the cusp of turning this recent price move into a multi-month barn burner.

The “Dumb Money” indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator shows extreme bullishness.

Figure 1. “Dumb Money”/ weekly

Figure 2 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: “Insider trading volume was seasonally thin last week, the result of most insiders being locked-up and prohibited from trading until after their companies’ Q4’11 earnings announcements, as well as the market holiday.”

Figure 2. InsiderScore “Entire Market” value/ weekly

Figure 3 is a weekly chart of the SP500. The indicator in the lower panel measures all the assets in the Rydex bullish oriented equity funds divided by the sum of assets in the bullish oriented equity funds plus the assets in the bearish oriented equity funds. When the indicator is green, the value is low and there is fear in the market; this is where market bottoms are forged. When the indicator is red, there is complacency in the market. There are too many bulls and this is when market advances stall. Currently, the value of the indicator is 65.09%. Values less than 50% are associated with market bottoms. Values greater than 58% are associated with market tops.

Figure 3. Rydex Total Bull v. Total Bear/ weekly

Let me also remind readers that we are offering a one-month free trial to our Daily Sentiment Report, which focuses on daily market sentiment and the Rydex asset data. This is excellent data based upon real assets and not opinions.

Source: Guy Lerner, Technical Take, January 22, 2012.

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Don Coxe has updated his popular webcast on Friday, January 20, 2012 – good news for his followers. You can access the recording here or from the sidebar of the Investment Postcards site (the column on the right-hand side) by clicking on Don’s photograph.

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.

As part of my daily routine, I publish all my reading (including snippets from other well-known commentators) in an Internet newspaper, “Investment Postcards Daily”. Click here to read the latest edition of the paper.

The newspaper’s subscription is separate from that of the “Investment Postcards from Cape Town” blog. To ensure you receive daily alerts of the updated paper, click here and then subscribe for free by clicking on “Subscribe” (top right of newspaper, just below my photo) or by following me on twitter (click here).

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.

During times of great uncertainty I also often focus on long-term indicators to provide some guidance.

Let’s by means of example consider the S&P 500 Index. A simple 12-month rate of change, or ROC, indicator seem to pick up the major turning points quite well. Let me say straightaway that monthly indicators are of little help when it comes to market timing, but they do come in handy for defining the primary trend. However, the ROC line below zero depicted bear trends quite clearly, as in 1990, 1994, 2000 to 2003, and from 2007 to March 2009. Right now, the ROC line is on a knife’s edge and is perched right on the zero line. I will, needless to say, be watching this space quite closely.

Source: StockCharts.com

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Jim O’Neill, chairman of Goldman Sachs Asset Management, talks about the growth outlook for China and the impact on the global economy. He also discusses the European sovereign debt turmoil and currency markets.

Source: Bloomberg, January 17, 2012.

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When reporting on the unfolding of the credit crisis I often referred to the Barron’s Confidence Index. This Index is calculated by dividing the average yield on high-grade bonds by the average yield on intermediate-grade bonds.

The difference between the yields is indicative of investor confidence. A rising ratio indicates bond investors are growing more confident, in other words preferring more speculative bonds over high-grade bonds. On the other hand, a declining ratio indicates investors are demanding a lower premium in yield for increased risk. That shows a waning confidence in the economy.

Since hitting an all-time low in December 2008, the Index was almost back to pre-crisis levels in January this year as investors grew increasingly confident. But that was when investors started focusing on sovereigns that were starting to get into trouble.

Since the start of 2011 the Index has given up more than 40% of its gains. This puts us back at levels experienced during mid-2008 – just prior to confidence falling off a cliff. Based purely on this chart, one has to conclude that confidence remains fragile.

Source: Barron’s

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I often use the 50-day moving average as an indicator of the secondary trend of a stock market, and the 200-day moving average as an indicator of the key primary trend. Specifically, one would like to see a stock market index trading above both these measure, but importantly above the longer-term 200-day line.

I have analyzed the moving averages of the principal asset classes using yesterday’s closing levels. The following are a few key observations:

1. The U.S. stock market indices and Brazil are above both the 50- and 200-day moving averages. (In the case of the Dow Jones Industrial Average and the South African All Share Index, the 50-day averages are also above the 200-day figures, representing a bullish signal called a golden cross.)

2. China is below both their 50- and 200-day lines.

3. India and Russia are above the 50-day averages, but below the longer term 200-day averages.

4. The euro is below both averages.

5. The oil price, U.S. dollar and U.S. government bonds are above both the 50- and 200-day lines.

6. The CRB Index (commodities) has just crept back above its 50-day average, but is still below the key 200-day average.

7. Gold last week breached its 200-day line to the upside, but still trades below the 50-day line.

In summary, the safe havens like government bonds and the U.S. dollar still have fairly solid technical pictures, but are starting to look stretched. In the meantime, more and more risky assets are starting to show promise as seen from the constructive action of a number of stock markets and some commodities.

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