Looking at the below chart we can see that the market has made a strong move out of the trading range and is currently heading down to around the 5100 mark. If you take the time to read Daniel Goulding's column “The Daniel Report”, he will explain the technical reasons as to why the market should get back to the March lows.
1. 12 months ago companies like Babcock and Brown, property trusts and Pacific Brands were being told by analysts that they were all under geared. Now 12 months later after the sub prime fall out and the ensuring credit crisis the same companies with the same level of debt are now considered to be over geared.
2. A lot of companies will be looking to downgrade earnings growth forecasts in the coming reporting season. Investors will see this as a negative and sell out of the stock especially when term deposit rates are as high as 8.3%.
3. Some companies will cut dividends in a bid to use this cash to help pay down debt levels.
4. Most companies will use this reporting period to clear the decks, this will give the impression that only bad news is coming from the market as such people will exit.
I am not expecting to pick the bottom but I am looking to pick up quality stocks cheap with the view of holding them for at least 3-5 years. Some I expect to hold forever and live on the wonderful dividends that they will produce.
Until next week.