The market is expected to beat a further retreat from the psychologically important 6,000 level today on growing worries that stock valuations are looking stretched after Australian equities rallied around 8% since January.
It also doesn't help that iron ore broke its five-day rally and suffered its biggest drop in nearly a month.
There's a growing feeling that profit growth isn't keeping pace with the recent gains, with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) trading on a one-year forward forecast price-earnings (P/E) of around 16x, or close to 15% above its historical average.
We sure can't count on the miners or the banks to deliver much in the way of earnings growth in this economic environment and next month's bank reporting season will be closely scrutinised for this reason.
The top 200 stock benchmark has tried and failed four times to break above 6,000 points, and while I think it will retake that level, I am not expecting it to until the latter half of this calendar year.
I have been taking profit and clearing out the dogs in my portfolio to consolidate cash over the past two months to give myself some firepower to capitalise on any market pullback.
This will likely be another ugly day for iron ore miners such as Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO) as the Metal Bulletin reported a 4.6% plunge in the price of the commodity to $US57.13 a tonne.
A 0.3% dip in the gold price to $US1,210 an ounce will also weigh on the likes of Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST), although it doesn't seem to change the sector's appetite for corporate deal making.
But there is still value to be found, judging by the latest round of analyst/broker upgrades.
Share registry business Computershare Limited (ASX: CPU) has been upped to a "buy" from "hold" by Morningstar, while scrap metal dealer Sims Metal Management Ltd (ASX: SGM) was raised to "overweight" from "neutral" by JPMorgan.
In the utilities space, Spark Infrastructure Group (ASX: SKI) has been upgraded to "outperform" from "neutral" as DUET Group (ASX: DUE) got bumped up to "neutral" from "underperform" by Credit Suisse.
Elsewhere, reproductive health company Virtus Health Ltd (ASX: VRT) has been lifted to "buy" from "hold" by Morningstar, while Bell Potter initiated coverage on fleet management and salary packaging company SG Fleet Group Ltd (ASX: SGF) with a "buy" rating and price target of $2.75 a share.
Takeover target iiNet Limited (ASX: IIN) was upgraded to "add" versus "hold" by Morgans at a time when the Australian Financial Review is reporting that the company is about to throw its backing behind M2 Group Ltd's (ASX: MTU) takeover proposal.
Speaking of corporate wheeling and dealing, Amcom Telecommunications Limited (ASX: AMM) will also be in the spotlight today after TPG Telecom Ltd (ASX: TPM) emerged as yesterday's mystery buyer of around 11% of its stock.
TPG wants to block the merger between Amcom and Vocus Communications Limited (ASX: VOC) but news reports state it isn't looking to launch a competing bid.
TPG is bidding against M2 group for iiNet.
On the flipside, Insurance Australia Group Ltd (ASX: IAG) got downgraded by two notches to "underweight" from "overweight" by the analysts at Commonwealth Bank of Australia (ASX: CBA).
Investors will also be watching free-to-air broadcaster Ten Network Holdings Limited (ASX: TEN) as it hands in its first half profit report card today, and oil & gas company Drillsearch Energy Limited (ASX: DLS) also releases its quarterly today.
