The Market Wrap Friday 7th August 2009

By Jason Fittler

The calm before the storm.



The market has started to move sideways again after a sustained rally over the past three weeks. Everyone who kept the faith and continued to hold their core blue chip shares has welcomed the rally. We have all experienced some good gains over this period.

The question now is where to from here, a betting man would expect to see some sort of pull back to cool off this rally. I suspect that we will see the sideways action continue through reporting season. If the big end of town comes out with good results and believable forecasts for the coming 12 months, I would expect to see the market rally further.

Any downward surprises could indeed see a pull back in the market. This would provide a buying opportunity. The good news is;

1. Companies are having little trouble re-capitalising themselves.
2. Lending is freeing up, with governments still buying toxic debts. I full expect to see the re-finance issue decrease in the coming 12 months.
3. Dividends are holding, as long as dividends can be maintained then prices will recover.

This all points to a recovery which is still well under way, as such I am still expecting to see the market back up around 4800 prior to Christmas.

The bad news;

1. Unemployment will continue to rise.
2. Interest rates will start moving back up
3. Inflation will also move back up.

However, these issues will have less of an impact on the market.

Summary

There will be plenty of opportunity to make good returns over the coming 2 years, you will need to be prepared to take profits when available, we are also moving into more stable times but are still a few years away from all time market highs.