thank you for the cheap stock, page-23

Huntleys moring mail

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It's my view the markets bottomed yesterday in their very sharp downward plunges and V reversals. That's both the Australian and US markets. The All Ordinaries in a panic selloff fell into the range I suggested as a worst case in my recent note to you - 5400/5500.

I had regarded that as possible as part of a panic selloff.

There could be some retesting of that low, but I doubt we will be lucky enough to get very close to it or, better still, lower! This corrective activity can last through September, but it's my view we have very probably seen the lows.

The Australian dollar has been smacked hard to just below US80c - very good for our exporters, but I would expect that to recover somewhat as well.

It's my view the consternation in the credit markets will take about three months to settle down as the markets carefully sort through the various risk parameters, first looking for the babies thrown out with the bathwater, just as in the stock market.

I would expect the market to move in a trading range from 5400 to 6450 for some time. There is room for volatility as the credit consternation continues to throw off aftershocks. Buying in the low end of this trading range, the 5400 - 5900 area, should prove worthwhile.

We have given you lists of stocks we favour buying, particularly in our 2007/8 Forecast. The banks, the resource leaders, and some stocks that have been particularly hard hit including Macquarie Bank, Allco Finance Group (declaration: I own this stock, also resource leaders) appear to be good value propositions for the medium term investor. I would only buy quality blue chip-style stocks - stocks you can live with for many years to come!

This note is aimed at investors who are not using leverage and debt to finance their holdings and thus could be really hurt if the markets were to behave differently to my scenario. We are not at the early stages of a new bull market, as we were back in March 2003, thus the overall degree of risk is higher - not suitable to high degrees of leverage! The sharp correction has certainly taken a fair degree of risk out of what was a too-hot market!


Ian Huntley