The Market Wrap Friday 19th March 2010

The next stage of the market.

By Jason Fittler

You may or may not be aware but on the 09/03/2010 we had the anniversary of the bottom of the market.

Our market bottomed at 3150 we are now back to 4800 a gain of 52% over the past 12 months.

My guess is that the market bottom is still very clear in your mind; it is hard to believe that 12 months has past.

We are fast approaching the third anniversary of the market top of 6800 on the 31/10/2007.

When you see big movements in the markets such as these there are many opinions as to where the market is going to from here, unfortunately this is generally based on fear or past history. What we do know is that there are always stages of recovery of any market, I believe that we are about to enter the next one.

1. Stage One of the recover is a large bounce back. This has happened starting in March 2009 and finishing in October 2009. During this stage good gains can be made by those who have the risk profile to buy into the market.

2. Stage Two you start to see the market consolidate, good companies restructure themselves and re capitalise themselves, this process has been going on for the past 6 months and is highlighted by the sideways movement in the market. As per the below chart you can see that the market has stayed in a trading range of between 4500 and 4800 over this period of time.

During this time you have the opportunity to buy quality blue chip stock paying large dividends at below fair value. This is the time to build a good long term portfolio. There will still be opportunities to do this over the coming months when quality stocks fall out of favor such as QBE this month.

3. Stage Three is when you start to see the second tier stocks and out of favor stocks start to recover.  This is the stage I expect to see start happening soon. There will be plenty of opportunities to buy second tier stocksover the coming six months.

For more information on the best value second tier stocks please give me a call on (07) 4771 4577.