The Market Wrap 22-6-12

By Jason Fittler

The market is looking set to drop back below 4000 points, the question is how low and if it really matters.

At this point the lowest I could see the market reaching is 3600 or around a 10% drop most likely it will get to around 3800 points or 5%.

Unless you are a trader and dealing in large parcels of around $100,000 per trade this will have little benefit to anyone.

The market at this level is cheap especially when you look at our blue chip companies such as the banking stocks. They are paying dividends in the vicinity of 10% gross which is twice what you can get in a term deposit but it is not twice the risk, well not in my book.

If you are chasing long-term capital growth and a high level of income then this market dip is the same as the previous 5 dips we have seen this year, an opportunity to dollar cost average some of the cash you have into the market.

Sure you can wait for the bottom and then buy, the problem being you do not know when the bottom is until after it has happened. You could also wait until the market is back around 4500 and then buy, I suspect that you will consider the market too expensive and be worried about it dropping.

There will only be so many chances to buy into the market at these low levels you should make the most of each one. No need to bet the farm but do not sit on the fence either, I am sure that many experts will tell you after the fact that they picked the bottom but I doubt any of them invested at the bottom.

Hedging your bets and dollar cost averaging in on the dips is the best way to proceed. That way you obtain the largest benefit with the less risk.

There is a lot of cash sitting on the side lines which is why at 4000 points it tends to rally back. Do not wait until all of this cash is in otherwise instead of paying 5% too much you will be paying 20% too much for these companies.

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