The cracks are widening. Tue Apr 21

Two weeks ago I thought the rally could be over but markets picked themselves up and continued to new highs. This time the pullback is that little bit more severe. The top 200 index, xjo, has now traded below last week's low. This is reasonably significant as a sign of weakness. Obviously, if there was a trend change, that is, a fall then a rally to another high followed by a further fall, then I'd be more bearish but for the moment it's a yellow light rather than a red one.

Apart from the weakness in US markets, with the S&P 500 down over 4%, the other factor has been a sharp reversal in recent trends so that gold rallied while oil and base metals fell. This has caused havoc with my positions as I'm essentially long base metals and short gold. I've sold out of the last of my lyc at 28.5 vs a buy price of 25. I've also sold the last of a batch of csl bought at 3212 for 3203 and bought back tol at 617 - sold at 602, as I've lost patience with this trade. I'm also close to stopping out of a few more trades. Days like this are hard, but they have to be looked at in perspective, which is that if you've done the right thing through the 6 week rally then it's a fairly small price to pay. Unfortunately, I've really just started trading well over the last few weeks after a dry period.

Just sold out of iag at 334 vs 345 as the market is down 101 points (at 11.44 am) near its lows for the day.

1.30 The day is not getting much better. Stopped out of lei at 2032 (vs 2182) but fortunately I had sold 80% of my position at about 2182 and was looking to build back in if the stock were to rally back through that level. Stop was at 2056. I also stopped out of ozl at 61 (vs 59) which was a judgement call. I don't mind the stock but after what seemed like a significant break on the daily amid quite a few upgrades, the stock has failed to really go anywhere and needs to get to 68 to confirm a weekly break.

Another judgement call has been to close out lgl and ncm. I keep changing my mind on the gold stocks and since the damage is small and the short term charts are bullish I decided to cut again. Here's ncm on a 30 minute chart. I've actually gone long at 2897 as a short term trade.

2.41 Stopped out of shl at 1105 (1071 av.) as the day's pattern continued of a return to the safe havens of healthcare, retail, gold and telecommunications. While the market is rallying off its lows, the main beneficiaries are these stocks.

2.54 Sold out the ncm from earlier at 2927 (2897 buy price) for an intraday trade that covered most of the loss on the options.

3.25 Stopped out of gpt at 50 (vs 55) and fmg at 253 (vs 256,261) as they both wanly attempt to rally only to fall over again. I'm particularly wary of gpt because it has been a real momentum stock lately.

Notice how the sell off in March was extreme while the fall earlier in April was also pretty sharp.

3.54 Stopped out of fxj at 112 (114.5).

Here's a chart of Macquarie Group, mqg.

The stock made a new high and traded around that level over 5 days and now has gapped through the bottom of the range at 3050. There was an attempt early in the day to rally which has now failed. I've bought some April 3000 puts which expire on Thursday as I think there's a chance of an acceleration down. It's a tricky one because I expect the market to have an up day tomorrow, to retrace some of today's fall.

4.01 I've also bought some short dated calls in csl. April 3250 calls for 22.5. The stock looks like holding 3200 which was a recent break out level although it dipped below intraday. It's the sort of defensive stock that traders may switch back into and it's a beneficiary of a weaker Aussie dollar.

4.10 The day is over with a fall of 2.4% or 92 points on the xjo. The bare facts don't do the day justice; most of the strong stocks fell by much more than that while the weak ones rallied, strongly in some cases. It was the day I was worried about because bear market rallies can reverse suddenly so that stocks gap straight through stops en masse. For example, gpt was a great buy signal - a strong break of a range with good volume - but it's looking quite possible now that it was a false break. Oh well, that's a couple of weeks' profit wiped out but I've almost cleared the decks. The last two weeks have been tricky as the market has been stalling and a change in trend would give some fresh opportunities.