Market Wrap Friday 18/02/2011

By Jason Fittler

Let’s take a longer view of the market.


The market held its own again this week, with the ASX staying above 4900 and the All Ords sitting above 5000.

The Dow Jones hit a yearly high on the back of positive news in the manufacturing sector.

This year we will see the US market to start to recover in earnest.

I wanted to go back in time this week and look at the market over the past 8 years as shown in the above chart.

What is clear from this chart is from the lows of 2003 the market move up around 150% in less then 5 years peaking around the 6800 level. What most of us remember however is the fall of 50% over the next 18 months with the market bottoming in March 2009. It is easy to lose sight of what you have gained when you focus on what you have lost.

Since the market lows we have seen a healthy recovery of around 1800 points or 56%, but you must be careful not to focus on short-term returns.

Since 01/07/2003 until now, the market has returned 10.5% pa on average. This is better then the expected return of 8% on average.

When we review our client’s portfolios we find that they have normally out performed the market.

What we are seeing now is a stronger market then we had back in 2006 and 2007. Companies have cut the fat, they are once more running lean, and they are well financed and profitable.

For those of you who have stayed in cash, now is your last chance to start getting back into the market.

I am not say invest all of your money tomorrow, but you do need to start focusing on getting back into the market over the next 12 months before it is to late.

If you would like more information please call me on (07) 4771 4577.

The Market Wrap Friday 14-1-2011

By Jason Fittler

Are we heading for new highs or re-testing?

The last couple of days have seen a strong move in our market with the ASX 200 sitting back at 4800.

Is this the start of a larger move or is the market simply retracing the recent highs. Given the momentum behind the move I expect we could see further upside in the short term, keeping in mind that there is still a lot of cash hanging around.

We need to keep an eye on the market over the coming week to see if it is moving higher, if the market moves above 5000 for many investors this will be a good time to take some profits on recent buys or look to write some covered calls over your larger holdings for the income.

Taking a longer view, I still expect the market to be volatile with swings between 4400 and 5000. As such, I am looking to buy in the top 50 on a combination of a weak price and solid income.

Income is still king and will be for at least another couple of years.

 

The Market Wrap Friday 7-1-2011

By Jason Fittler

It has been three years since the start of the Global financial Crisis.

Like all major events, the recovery is a slow and steady process.

If we look at the year in review, (see below chart) you will note that although the year was volatile it spent most of the year between 4520 and 4760.

All up, the market moved sideways, we can expect more of the same this year.

The strategy we have adopted over the past 2 years is to buy good quality long term, high yielding stocks and hold for the income. Growth will come with time. We continue with this theme into 2011 and expect the volatility to continue.

History Lesson

The below chart shows the market fall in 1987, those who are old enough will clearly remember this time in history. Note that the volatile nature of the market between the bottom in 1988 and the low in 1991. Finally, the technical bottom was in late 1992 before the market started to move back into a Bull market. 

What is important to note is during this time the market generally moved sideways. It wasn't until 1993 that we saw the market start to move back into the growth stage.

By these standards you should not expect to see the current market move into the growth stage until 2014, and we also expect that we could see the market re-test the March 2009 low during this year.

Still to come!

The economy is yet to bottom, I expect that this will happen in 2012 and 2013, the bottom of the economy will be reflected in wages not increasing, slow down in retail spending, higher unemployment and fall in the property market.

We are just now seeing the start of the property market collapse. Newspapers are reporting the slow down in the property market and we can expect to see this deteriorate.

The two major factors affecting the property market are job security and lending practices.

As the banks tighten their lending practices less people will qualify for loans. Add to this the increase in interest rates and you have even less people looking for loans. Less loans equals less people look to buy property, ergo, prices will drop.

Talk to any Real Estate agent worth their salt and they will tell you that it is a buyers market. Simply put there are more sellers then buyers at present.

2011 is shaping up to be a fantastic time to get that extra cash into the market, you may have to wait a couple of years to see the growth but investing is a long term activity.

In the meantime, sit back and enjoy those dividends.

6% = 6%

Bank Term deposits are paying 6%, big blue chip shares are also paying 6%. Logic tells you that if you are getting the same return then invest in the lower risk investment. In this case, the term deposit. However, 6% does not always equal 6%.

Lets work some examples

Term Deposit

You invest $100,000 at 6% for 12 months.

Interest paid is                                     $6000.00
Less tax at your marginal rate of 30%    $1800.00
Less adjustment for CPI 3%                  $3000.00

Net in your hand                                 $1200.00

Your net return is 1.2%
(CPI related to the purchasing power of money or inflation, what cost $100 this year will cost $103 next year.)

Blue Chip Share

You invest $100,000 into a stock that pays a 6% fully franked dividend for 12 months.

Dividend paid is                                    $6000.00
Plus Franking Credit                               $2571.00
Less tax at your marginal rate of 30%     $2571.00

Net in your hand                                  $6000.00

Your net return is 6%.

When dealing with shares, CPI has no effect on the income, as the price of the share will increase over time usually faster then inflation. When dealing in cash the value never changes, as such it is affected by inflation.

If you would like to find out more please contact us on 07 4771 4577.

The Market Wrap Friday 8-10-10

By Jason Fittler

5000 here we come!

September was a good month with our market putting on 4%. This puts us back above the 4500 mark which should provide the support for the market to start moving back to fair value of 5000.

As you can see from the below chart the market hit 5000 points back in April this year but was unable to sustain the level.

Time has changed since then with the US now looking much stronger and the UK debt issues now under control.

We expect to see the market climb to 5000 before December this year. We also expect to see the market stay around this level.

As far as sectors go we have seen the gold sector run hard and expect that the energy sector will be next.

For you traders I recommend you get a copy of The Sextant Report from our web site to see which stock to trade.

For the long term investor we will continue to pick up quality high yielding stocks with strong cash flows and take a longer 3-5 year view on the market.

The Market Wrap Friday 17th September 2010

By Jason Fittler

4800 here we come!

The market has finally made a positive move above 4500 moving to a higher high this week.

Fair value for the market is 5200 and although we are a long way from there, 4800 is not unexpected.

We are seeing good reports coming out of the USA on retail sales; retail food, technology and the major blue chip stocks are forecasting improvements.

The concern at present is the new liquidity levels required for banks in the US and this may spur another round of capital rising.

Back here at home our banks already comply with the new requirement and are in fact lobbying for the government to ease the liquidity requirements for Australian Banks.

With improved economic conditions around the world comes inflation, inflation brings interest rate hikes.

We have seen a decline in house hold debt over the past quarter indicating that Australians are looking to pay down debt.

Very smart move, we can expect to see interest rates raise next month combined with banks tightening lending practices will put a strain on the housing sector.

 

 

The Market Wrap

By Jason Fittler

4200 here we come!

Back on the 13/08/2010 I wrote that we were about to start heading into the final correction.

You can see from the below chart the last two weeks have confirmed the negative price action.

In my book, this is a good thing. Why?

1. This should be the final wash out of the market, getting rid of those investors who have just had enough.
2. It provides a buying opportunity in a number of quality stocks, which are now sitting on massive yields.

Keep in mind that not all stocks will drop; Campbell Brothers is one of those, which have bucked the trend and has moved up 7% while the market dropped 5%. Other stocks such as Suncorp, Cardno and Woolworths have all had great reports; as such, I do not expect to see much price weakness in these stocks.

The financial stocks and insurance sector are shaping up to be good buying opportunities along with the resources and industrial stocks. I am also very keen on the property sector with Westfield at the top of my list.

When the market falls below 4200, the buying opportunity will start.

Buy for the yield and hold with a median term view for growth.

I expect we will see the market back above 5000 points towards end of this year or early next year. At this level, it will be time to reassess the situation.

 

The Market Wrap 9-8-10

By Jason Fittler

No direction in this market.

It would be fair to say that the market has shown no direction this week.

The Bears will call this a sign that the market cannot move higher and will fall from here. The Bulls call this consolidation, the market is creating a base from which it will start a further gains.

The general feel is that the market is heading above 5000 points by December, 5200 is still fair value for the market.

Whether this level is reached or not does not really matter when you can go out into the market right now and buy the big blue chip stock paying massive dividends. Given that these dividends are maintainable, the long term forecast is for the market to move higher.

The smart money will stop focusing on the short term fluctuations and buy the long positions.

The volatility will stay with the market for now but in my view the bottom is in and long forgotten.

The Market Wrap 9-7-10

By Jason Fittler

Double bottom statically unlikely.

At this point I am not expecting to see the market fall back to previous lows. What I am expecting is a very slow, long recovery of the market.

For the first time in years we are starting to hear people talk the market up. Do not get me wrong the Bears still out number the Bulls but there are Bulls.

Those chasing a quick recovery are going to be bitterly disappointed. There will be plenty of bargains along the way and you will receive lovely large dividends as well. Excitement will not be abundant, but in 5 years you will be glad that you stuck with it.

The major issue in our market right now is political. When will the next election be called and who will win. To me this is the catalyst to bring back the optimism in both our daily life and the markets.

So keep looking for the bargains, slowly get the cash back into the market and wait for the long-term rewards.

The Market Report 5-7-10

By Jason Fittler

Market did not find support.

The news flow into the market has been very active over the past couple of weeks but this has not flowed through into a healthier market. As you can see from the below chart the market has fallen further over the past week. It failed to find support around the 4400 level and is now currently trading close to 4200.

This could see the market continue to fall below 4000 in the coming months. The new Mining Resources Rent Tax was supposed to resolve the issues for investors and see money start flowing back into the market. BHP and RIO had small gains but nothing to write home about, at best these stocks have been flat after the announcement.

My view is that recent events in our government has once again provided uncertainty for investors. The Labor party is changing its mind as quickly as the opinion polls change.

For now, I for one will be weary of the market and this government. I think it is time for the people to elect a new Prime Minster and the announcement of the election date will be most welcome. I expect that the market and investors will be sitting on the side lines until some certainty about who will govern Australia is achieved.

The Market Report 25-6-10

By Jason Fittler

Market is looking for support.

They say a week is a long time in politics, Kevin Rudd would agree.

In the stock market, you can live a lifetime in a week. Last week has been no different; the market has been hit with an onslaught of news. Telstra gets $11 Billion from the government and as such shareholders will see the price move higher. Sundance Resources loses it board and will need to re-build. Elders came out with another downgrade and wipes out $100 million of shareholders value and Iress hit a high and profits can be taken.

The All Ords however has stalled at 4500 and is looking for some direction; if the market falls below 4500 I do expect that we will see it move close to 4000 and quickly. If it holds at these levels I do expect a slow increase back towards 4800 and beyond.

Traders you may want to short the market, I would use options to hedge my bets.

Investors continue to pick up those blue chip stock paying high yields on good cash flows.

My pick right now is Campbell Brothers but make sure you take a look through your portfolio to see if you have enough in the banks, insurance, infrastructure and media assets as well.

The good news is that fundamentally our market is in good shape. If we can just get the government to settle down and stop making grand sweeping statements in a bid to get re-elected we will all profit.




The Market Wrap Friday 11-6-10

By Jason Fittler

4700 looking more likely.

The market recovered on Friday to close back above 4500, this should be the start of a recovery rally which we expect will peak around 4700. We still believe that fair value for this market is 5200 but I do not expect to see the market reach this level on the current rally.

The volatility is still in the market place so do not become complacent, it would not be unexpected to see the market fall back below 4000 points in an effort to retest the March 2009 lows. Technically we could see the market fall to 3700 in the coming months.

So what should you do?

For long term investors continue to hold your quality blue chip stock and collect those dividends. This Bear market will be over in a year or so and you will see the market start trading back towards fair value of 5200 or above.

Short term investors should look to short the market around 4700 either through selling out shares or through options positions.

For those still holding cash, make sure you buy heavy into any dips as this may be your last chance.

The good news is that we are almost out the of the Bear market and in a couple of years this will all be a distant memory but the money made will not.

PS. When you need professional advice call us, (07) 4771 4577.

The Market Wrap Monday 24-5-10

By Jason Fittler

Support is broken!

Last week we saw a massive dip in the market, an opportunity for the brave. Friday saw an extremely volatile day with the market dropping 3% before recovering later in the afternoon to close down 0.3%.

The question is:- Are we going to move lower from here? Answer is YES, but not in a straight line. We will see this volatility continue to gain pace and as such I do expect in the next 12 months we will see the market move below Friday’s lows.

Should you exit the market? NO. Australian companies are re-capitalised and now forecasting great income streams. Portfolio yields of high 7% up to 9% are now common place, along with this you can expect to get large gains of up to 20% in the coming 12 months. Now is the time to be buying into the market with a long term view.

What caused the drop?

1.    Super tax on mining companies
2.    UK Sovereign debt issues(Greece)
3.    Sovereign risk caused by the Super Tax

Item one is detailed below and the Greece issue is well on the way of being sorted out. Sovereign risk is something we have never had to deal with but is certainly the cause of the fall in the Aussie dollar.

Given the radical changes to the taxing of mining companies and the uncertainty if other large Australian companies will become subject to this tax, overseas investors are fleeing the country along with their money. The Australian dollar will continue to fall while this continues to happens.

What is also clear is Rudd and Swan are selling Australia up the river in a bid to get re-elected.

There is a old saying “You get what you pay for.” This holds true for the stocks market, buy quality, buy high yielding stocks and in 3 years sit back and count your profits. If you only focus on the short term then you can join the queue for people who will invest on the next dip.

After the March 2009 lows of 3100, many investors advise me that they would buy if they saw these levels again. Here they are and now is the time to buy.

Positives

1.    Australian companies re-capitalised.
2.    US Companies have improved earning forecast.
3.    US is holding interest rates low and Australia is on hold for now.
4.    The market is 22% below fair value, expect to see the market move above 5200 this year.
5.    Volatility is providing buying opportunities.
6.    You can achieve high dividend yields at the current prices.

PS. When you need professional advice call us, (07) 4771 4577.

 

The Market Wrap Thursday 13-5-10

By Jason Fittler

Last week we saw the market take a fall back to support levels of 4500, below the 4700 support levels I was expecting. The bulk of the drop came about in the materials sector. There were two main catalysts for the fall. First the sovereign debt issues in the UK mainly Greece and next the new super tax introduced by the Rudd government on miners.

The debt issues in Greece now seems to be solved, but we are left wondering whether this is just the tip of the iceberg.

As for the super tax, this still needs to be approved and I expect that there will be strong opposition to the proposal.

Regardless, Australian companies are still looking strong and are paying high yields, which make them cheap at these levels.

We advise caution given the fundamental roadblocks which are currently being thrown in front of the market.

However, now is a great opportunity to invest in blue chip stocks if you have some cash sitting on the sidelines.

PS. When you need professional advice call us, (07) 4771 4577.

The Market Wrap Wed 27-4-10

Higher Lows are now expected.

By Jason Fittler

They say that predictions about the stock market tell you more about the person making the prediction than what happens in the market. Right now we are getting all sorts of predictions coming through.

What is important is not to get caught up in all of the hype. We have one side calling a major drop in the market and other saying that the Bull market is back.

Property investors are calling for a property shortage and the prices are about to take off get in now. (70% of advertising in papers is for property so their motives are clear.)

So what am I selling? Lifestyle. What holds true is that the more income you have the better your lifestyle will be. This can mean more toys, bigger house or less time working and more time with family. Right now there are plenty of good opportunities to buy quality blue chip and second tier shares at large discounts and sustainable high dividends. An average well structured portfolio can now achieve a yield of 7.5% and expected growth of 10%pa.

For me if the market goes up I will use some of the profits made on the blue chip stocks to buy some high yielding second tier shares. If the market goes down I will use spare cash or gearing to buy the blue chips at a cheaper price.

The aim is to increase the income of your portfolio and improve your lifestyle.  

Call (07) 4771 4577 and let's get started.

The Market Wrap Wed 21-4-10

By Jason Fittler

5000 points for the ASX 200 is this a new start?

Last week we saw the ASX 200 and the Dow Jones hit 2 year highs. The ASX 200 closed above 5000 points and the Dow Jones above 11000 points. This certainly sent a signal that the market is starting to recover. The US markets are currently into reporting season with some good results starting to come through.

Breaching the 5000 level is a good indicator that our market is more likely to hit the upside target for this year being 5400. This will give investors another 10% upside from the current levels, couple this with the high sustainable dividend currently being offered by the blue chips and 2010 will be a very profitable year indeed.

What to do!


At this stage the rally has been led by the blue chip stocks, small caps are clearly lagging the recovery and the second tier stocks have only started to move over the past couple of months.

If you are sitting on cash I would take any opportunity to buy into the market; that is if the market does pull back to around 4700 points buy into the majors such as banks, mining, insurance and retail.

If you already have sufficient blue chips start looking into the second tier market. My key picks are in the insurance (SUN), property, infrastructure and energy. These stocks are paying high yields and have plenty of upside left.

In regards to the small caps I think that they still have some time before they run, but if you are fully loaded on the above stocks then there are some small cap stocks which have good potential from here.

Take profits

For those who were buying from the March 09 lows and are now sitting on some nice profits, lock these in. Do not sell out your entire holding but make sure you take some profits as the market will remain volatile for some time yet. 

The Market Wrap 7-4-10

Are we heading to new highs?

By Jason Fittler

The best part of writing a weekly newsletter is that everything is in writing. Which means you the client can go back and see if what I said has been right or wrong. All of my newsletters can be obtained online. So if you would like to keep me honest please go back and read through them.

Today we are back to the recent highs in the market, as you can see for the above chart the market has moved back above 4900, the Reserve Bank has lifted rates again this month in an effort to make the economy slow down. Major Banks have followed suit, bad for those with large mortgages, but great for us who hold their shares. This is all pointing to a more positive economy here in Australia.

What is more heartening is that our major blue chip companies are now forecasting good earnings moving forward and the market agrees with their figures. From here I expect that we will see the market move closer to 5200 in the next 6 months. This will mean another positive year for the market; we are slowly clawing back the losses of the previous years.

The other positive news is that the US market is also recovering. This indicates long term we should see our market hit new highs.

Do not become to euphoric, the market will still have its dips as it is still fragile but I do expect to see higher lows (being above 4500) on the dips. Right now I am focused on the second tier stocks such as Fortescue Metals and Suncorp; this is where the higher growth should come from over the next 12 months.

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.

The Market Wrap 12-3-10

By Jason Fittler

Looking for new highs!

The market has made some good moves over the last week, once again we find ourselves above 4800. The question is will we move higher?

Over the past week there has been a lot of positive news out of the US which has pushed the market higher. It is starting to feel a lot like a recovery as such I am expecting to see the market touch new highs in the coming months.

There is still a lot of economic issues to sort out but to date we are seeing increase pricing in Iron Ore, unemployment rates have stabilized and the reporting season delivered solid results and a positive outlook.

Overall 44% of companies surprised to the up side while 29% disappointed. Overall this is an increase of 5% more companies surprising to the upside.  This increase was driven mostly by the big end of town. Couple this with better cash flows, high dividends and low levels of debt and the market is starting to look like it is in good shape.

The one caution is that at the current price the market is around fair value, any move up from here would be on the back of increase in expectations more than based on fundamentals.

The main take away is that you can buy quality stocks with less risk in this market.

Take this opportunity to build yourself a high yielding portfolio, also note we are expecting 13% growth in the market for this year.

Who Should You Follow?

By Jason Fittler

If you read the article in the Townsville Paper on the 05/03/2010 by Daniel Goulding (of my office) you may be wondering who to follow about where the market is heading.  

If we take a look at the below chart you can see we closed Friday on 4767 points, once again we are getting close to the 4800 mark which is where we have seen resistance in the past.  This time it has been a slower move up. We are still experiencing some resistance to the market moving further ahead and we are also seeing most of the gain coming from the big blue chips. The small cap stocks are struggling in this market.

To me this is an indication that the market will struggle to reach new highs at this point in time and we could expect to see a pull back in the near future.

So who should you follow? It depends on what you are trying to achieve.

For long term investors use the opportunities to pick up quality stock paying a large dividend, the two which come to mind are Spark Infrastructure and QBE, I grabbed some for my portfolio this week.

For the Traders, pay close attention to Daniel’s calls perhaps take a look at selling some covered calls.

The Market Wrap 26-2-10

By Jason Fittler

Will the trading range hold?

Over the past weeks we have seen the market test the 4500 low point, once again the market pushed back up to 4700 before re-tracing the gains over the past couple of days. Australian companies are currently in their reporting season and although a number have come out with good results the focus has been on the under performing companies. So far we have seen an ordinary result from Telstra and a poor result from Toll Holdings.

BHP and RIO have also fallen over the last couple of days. I expect the next couple of weeks to be volatile while investors trade on the back of any news. I however will be using any major sell down in good quality stocks as an opportunity to add them to my portfolio.

Right now is a great time for the long term investor, buy good quality stocks paying a high yield and hold for the next 3-5 years, the days of the short term gains have past for now.

Let the institutions rip themselves apart while we sit back and enjoy the healthy dividends.