Yo-yo. Fri May 29

The last day of the month and the yo-yo market continues as we're bouncing off the bottom of the trading range to be up 48 points at 12.15pm. The US markets rallied after the 7 year bond auction was well supported especially since there had been good figures early suggesting that their economy is rebounding. Oil and base metals were up and so was gold.

I've had the opportunity I was looking for to buy some Woodside Petroleum, Wpl. I think that the stock might have completed a 3 wave correction and made a buy signal for the next move up above the recent highs of 4594. I've bought stock at 4335 and some June 3400 calls at 130.

I've also bought stock and options in Newcrest Mining, Ncm. It is resuming its rally after a little trading range.

I've bought the June 3282 calls at 140. With both this and Wpl, I'll probably sell out some of the stock fairly quickly. The weekly for Ncm is quite encouraging and I'd like to see a run up towards 3600.

Elsewhere, my longs in Ipl and Lgl are up but so are my shorts in Cba, Mqg and Qbe. I've hedged my Qbe position as it rallied back through yesterday's high at 1935. I also got some stock at 1915. I'm watching this closely as it still seems under pressure and I might get rid of my stock hedge later.

Cba has rallied 2% but has not triggered any stops. Mqg, like Qbe, has traded above yesterday's high; by quite a long way in fact. Given that there's a 5 wave look about the fall, I'm tempted to square this up. The intraday chart looks pretty good. Here's the daily first.The 60 minute chart shows a sell off from the opening surge, a consolidation and now some tentative strength.1.13 Sold out Mqg June 3000 puts at 115 (v 153) as I'd like to cut the Macquarie short position. It's proving difficult to sell the June 3200 puts for a reasonable price so I'm wondering whether to just hedge them with stock. Since I think the trend is down and I might get a chance to short it after a retracement, this could be a convenient way to go. As I write this, the stock is starting to rally so I've quickly paid 3160 to get my hedge.

1.27 My book is skewed bullishly now. Long gold and oil and Ipl, which is in fertiliser and explosives so correlated with the resource sector. I've hedged two of my financial shorts with Cba the only one left. The xjo index is shaping up more bullishly. I think it's most likely to form a head and shoulders here but even that bearish scenario could still see an interim push towards 3900.

4.05 I have to race off shortly but the market has rallied all day. Cba kicked again but this is the one I decided not to hedge (unfortunately!) as overall it looks to me to be early on in a trend.
Otherwise, I bought more Ncm June 3282 calls at 132 to take my average to 136 and have been selling stock at 3290 into a late rally. The rest are flat.

The next phase begins. Thu May 28

Today is expiry day for May stock options and it often marks the end of one trading phase and the beginning of another. It looks to me as if the xjo has completed a shallow 3 wave rally and should break support in the next few days.It's a very similar chart for the Dow which was down 2% last night amid more worries about the bond market. Financials are weak again in our market and my shorts are doing well. I've added to my puts in Macquarie with a few June 3000s at 153 as the stock makes a new low.On the long side, Lihir gold is up 2% and Incitec Pivot, Ipl, is firmer. I cut Mig at 143 (v 142.5) as it dropped like a stone. I had sold a few shares y'day at 153. It's now 139.5.That was a small position, fortunately, but Leighton's has been the fly in the ointment because it's my biggest mover having fallen nearly 4%. It does tend to be a bit illiquid but the size of the move is a little surprising. I'm holding on here, because I think that it should hold support around 2182 or only make a marginal new low if it continues to fall. I'm reluctant to put on any fresh positions as things can be volatile on expiry day. I like Bsl, it's accelerating, but I might have missed the boat in the short term.

12.28 Decided to cut Lei at 2216 (v 2300) as the fall gathers pace. I like the set up still, it was just one of those things that it reversed, and if the stock can hold the recent lows and show strength I'd look to buy back in.

Sold out a couple of the Qbe June 2100 puts at 210 (v 82). I've been better at running my positions than usual, something I've been working on, but I wanted to take something off the table.
12.56 Sold a couple of Cba June 3500 puts at 159 (v 112) for the same reason.

1.33 I still had a few Mqg May 3200 puts left over. I've bought stock at 3026 to hedge them. The puts will exercise tonight to sell out that stock at 3200 so the effective selling price of the puts is 174 (v 135) in addition to the profit on the stock trade which I wrote about y'day.

3.09 Sold a couple more Cba June 3500 puts at 150 (v 131 - different purchase).

Also bought and sold some Woodside Petroleum, Wpl, for a small gain. I'd like to go long this but I think I need to wait until tomorrow, if there's another up day.

3.16 I sold out a few Cba June 3500 puts today because we're on support. However, if we fail to hold this level there could be a fast move down; so I've bought out of the money puts which have more leverage to a fast move. They're the June 3300 puts at 72.
4.10 Ipl and Lgl closed near their highs while Cba and Qbe were close to their lows. Mqg rallied a little off its lows but is still down 2% on the day. Overall, the index fell 45 points.

The glass is half full. Wed May 27

Of the scenarios I was considering for last night, the one I thought least likely eventuated. The US indices ran around 2.5% on better than expected consumer confidence while ignoring worse than expected housing data. The Australian xjo index has followed suit early to be up 34 points. However, we're 15 points off our highs so I can see us drifting lower after yesterday's short squeeze and a little bit of scepticism in Asian markets about the US with the rallies being only around 1% like ours.
My positions have gone pretty well considering. Ipl is up 7% at 252. I sold some at 248 (v 236) but I also have been picking up ipl Sep 264 calls at 16 (a couple of days ago) and at 21.5 this morning. My plan is to hedge them with stock once I feel the rally is over. Mig is also up 4 at 152 and I sold a few at 153.5 (v 142.5) while lgl is only down 1c despite an overnight fall in gold.
There has been yet another large equity issue with ANZ bank looking to place $2.5 bn of shares at a discount but this hasn't hurt cba which is up another 13 cents although well off its highs. I did sell a couple of yesterday afternoon's extra puts on some early weakness at 124 (v 112).
Mqg has gone according to plan. I bought a synthetic May 3200 call yesterday - which means I bought stock and May 3200 puts. I sold out the stock early at 3190 (v 3094) and so far have sold out half of the puts at 110 (v 135). In this case the 25c loss on the puts is outweighed by a 96 c gain on the stock. The stock is now down 28 on the day at 3122. Qbe is also failing to rally and is testing support again at 2000.

12.14 I've been sceptical about the ability of the market to rally much further but I'm trying not to let that colour my views about individual stocks. A few of the smaller resource stocks in the top 200 index are shaping up bullishly. One of them is Minare, mre, a nickel stock.

There was a high at 69 five days back and we're getting close to that level again. If there was some buying strength through that level I'd go long. It's an odd chart with the one day in April where the stock spiked up then sold down and it may be that the high in early May formed a double top. On the other hand if the stock can push through to new highs then the length of the consolidation would suggest there's a solid base for some good gains. The weekly, above, speaks for itself.

Kagara Zinc, kzl, is doing something similar. It made a minor buy signal early as it traded at 118 although the high from 6 days back at 125 is a bit more significant.

12.34 Sold out a few more of my Qbe May 2050 puts at 51 (v 24). Only one day to go until expiry of May options and with the stock hanging in around the support at 2000 I don't want to see these puts expire worthless tomorrow on the basis of another little bounce off support.

1.12 Spotted a nice set up in Leighton holdings, lei, which had a leasurely 5 wave pullback from a strong run into early May. Long at 2300.

The set up is easier to see on the 60 minute chart.

1.16 Decided to hedge the last of the qbe May 2050 puts as the stock is finding support right at the bottom of the range. Since the puts are only worth their intrinsic value with a day to go I bought the same amount of stock at 1985, the equivalent of selling the puts out for 65 (v24). It's more liquid to buy stock and if support fails I can always sell out for a small loss thereby reinstating the short position. Also sold out a few more Lihir gold June 300 calls at 26 (v 22) as it's holding support but has gone nowhere for 3 days.

3pm Sold out the last of my ipl stock at 253 (v 236) but I'm still long via September calls.
Qbe continued to fall but I didn't manage to get out of my stock hedge. I'm still long June 2100 puts so the weakness is welcome.

4.15 The market closed with a much reduced gain of 13 points. Cba, which has been stubbornly up all day, fell in the last half hour or so to close down 32. A pretty good day for me. I've taken some profit in ipl, lgl, mig, mqg and qbe. I'm still long ipl, lei, lgl and mig and short cba, mqg and qbe. Lei is the new position today. My assistant took the kzl trade which did well to close at 121.

Ho hum. Tue May 26

It's 1.20 pm and the market is following the script to be little changed. On closer examination there is a bit more to it with financials continuing to trend lower. My best position today has been qbe which is back at major support around 2000. Having had an earlier 3 wave rally off this low I expect it to fail this time. I've got June 2100 puts which I want to hold on to but I also added to a residual May 2050 put position when the stock was higher, buying extras at 24 and 28 to go with the original 80 c purchase. I've sold out half of these at 49 as there are only 2 days until expiry.
I also sold out a small amount of my Cba June 3500 puts at 178 ( v 131) as it hit support around 3400 early on. It's bounced since then and is now at 3443 down from a close last night of 3480. Meanwhile, mqg is off its lows but still down 28 at 3100 while in sto I've sold out of my June 1414 puts at 57 (v 50) as I never got on a full position here and because the financials have fallen hard so that my overall short positions are now quite large - so something had to go.
On the long side, lgl has recovered to 322 while ipl and mig are fractionally higher.

3.40 The big mover today has been cba which is now up 30 at 3510 having been 3396 earlier in the day. I'm glad I sold some puts at the 3400 level but I wish I'd sold them all because I could have reinstated my position 50 c cheaper!

I'm happy to stay short because the stock is still trending lower overall. The pattern we've had - the market down 23 y'day and up, so far, 36 today - is typical of 2 day periods where there's no lead from the US. ie A gentle trend one way only to reverse the next.

3.55 I bought a few mqg May 3200 puts earlier at 135 and the same number of stock at 3094; essentially this is the equivalent of buying May 3200 calls. I did it that way because I'm hoping for a quick run up so I can then sell out the stock, having subsidised the May puts. Also, as a partial hedge for my June 3200 puts which are going down as the stock bounces back. The stock made a potential intraday buy signal earlier which is close to confirmation now.

4.14 Mqg ended on its highs confirming the little buy signal. Cba also closed up at 3545. I bought a few more June 3500 puts at 112 as there is a lot of resistance between 3550 and 3650 so I thought the risk/reward was pretty good. Qbe was one that didn't reverse wildly although it did rally off its highs. The market behaved as if it was a short squeeze, finishing up 51 points. The Dow Jones looks weak having failed to rally much after a big down day last Wednesday so I suspect that any rally would be small. My logic is that our tendency should be either to sell off immediately on a weak lead or sell off fairly quickly after the open if the lead is mildly bullish.

The Macquarie shorting ban expires. Mon May 25

The Australian Securities and Investment Commission has cautiously withdrawn the ban on covered short selling in financial stocks. This was cynically called the Macquarie ban with the inference being that intense political lobbying was responsible for the continuation of the ban long after most markets had cancelled similar restrictions and despite the Australian banking system being much sounder than most.
On a day when I expected very little to happen given flat overnight markets and major market closures tonight and despite the widespread expectation that the ban would be lifted, the financial sector led by Macquarie has gapped down, rallied for a while and is now driving down decisively. It's 12.15 and the xjo index is down 18 points having been up 22. Of my financial short positions, mqg is down 5%, qbe down 3.2% and cba down 1.5%. In the case of mqg and qbe, I'm now confident that the downtrend is resuming in earnest so there's a good chance I'll be able to run these positions for a little while. Cba is still in its trading range but is starting to move convincingly away from the gravitational pull of the congestion around 3600.

Lihir Gold is now down after having opened stronger and on the daily chart I could make a case to cut the position as the stock has breached Friday's low, Friday having been a reversal day also. Looking at a 60 minute chart the retracement looks fairly typical after last week's surge and I would expect new highs fairly soon after this correction completes so it makes sense to stay with this position.

Of my other positions, mig has performed well, up 4 at 149 having earlier made a new weekly high of 153. I bought and sold a few extra (148 in/151.5 out) for an intraday profit. Santos, a small short position, was strong early but is now back to square.

12.37 I put on a new long position in ipl which is a bit marginal on the daily basis but is supported by a good signal on the intraday charts.

The daily is in a short term trading range within a gently rising uptrend. It's broken the high of the previous day after 3 down days in a row. It looks to me like a flat correction of the move up from 220. I've bought stock at 236 which has held pretty well as the market fell subsequently - it's now 235. The 30 minute chart, below, shows a buy signal at 233. It's a nice tight launching point based on Friday's action.
3 pm Financials are still under pressure with mqg near its lows at 3120. The daily chart has made a clear break and I'm staying with my position rather than taking any profits. Here it is. The stock last made a clear buy or sell signal with a trend change back in March. There were 5 up days and a 6 dollar plus move from around 1800 before the first sign of congestion...something like that would be nice. We've had 3 dollars and 2 days so far.

4.11 We've matched out now, down 24 points on a surprising down day.

Sovereign risk - early signs. Fri May 22

Markets are getting jittery about sovereign risk or rather the potential for sovereign risk further down the track because of massive deficits and bond issuance in Western economies, especially Great Britain and the USA. The US dollar is weakening and gold is profiting from this fear. Meanwhile both the bond market and the stock market fell last night in the US (stock markets were also down 2%+ in Europe) with basic resource stocks faring worst as fears that the "green shoots" are minimal have grown.

As was the case yesterday, our market is having a surprisingly calm time of it. Down just 46 points after clear outperformance yesterday. It's a long weekend in the UK and America with public holidays on Monday and with overnight futures contracts slightly firmer it's possible that we're allowing for a short covering rally. There may also be a safe haven effect because although we now have a large budget deficit, as a percentage of GDP it's relatively small: for example, US analyst Denis Gartman is recommending exposure to Australia and Canada because of healthier public finances and commodity trading with Asian countries.

As for my positions, it's noon and lgl is up 10, mig down 2, cba down 25 and qbe up 5. Apart from lgl where I've sold a few June 300 calls at 31.5 (v 22) the other moves are minor. There's some significance in the cba move though because it has confirmed a lower high on Wednesday with a new low this morning.It's a bit easier to see on a 60 minute chart.

I've reinstated my short position in mqg with the purchase of June 3200 puts at 163. I wanted more evidence that the correction was over and it looks like the pennant style pattern has completed as the stock has traded through both the recent lows of 3336 and 3303. It's at 3329 right now.

1.18 Buying some June 1414 puts at 50 in Santos, sto, an oil and gas producer. The stock had an equity issue recently hence the sharp fall in price followed by a 3 wave retracement. It's worth a try on the short side having stalled for 3 days and then broken that small range.
2.32 A bit more on the cba trade...I know it's not a particularly high quality position as it's been in a trading range for over two months now but given that I'm long these June 3500 puts I'm willing to keep them while there's minor weakness.

4.01 Approaching the end of day and the market is still waiting for further information as it were, it's traded in a 20 point range since the overnight markdown which is pretty tight and is down 51 points now. Very little change since earlier - I only got half my position in sto as it fell from 1432 to be 1417 now. Generally it's been a day for the defensives which today includes the banks.

Negative divergence. Thu May 21

Well the Dow actually made a new high last night by about 3 points then promptly reversed to close 168 points away from that level. Meanwhile, the S&P 500 also rallied early then reversed but it failed to make a new high. There's a charting idea called divergence where, say, oil might make a new low but oil stocks, which would have been tracking the oil price, make a higher low. In that case, positive divergence, you might decide that a short term low had been made and that you could cover any short positions. In last night's instance, you'd call it negative divergence.

Gold ran again and I've gritted my teeth and got back into lgl. Here's the daily.

I've bought June 300 calls at 22 and some stock at 314.

1.05 Sold the lgl at 315, the calls are enough.

1.40 Unwound mqg at 3390 (v 3426) and the puts at 90 (v 108) as mqg is still undecided but looking like it could fall rather than continue its retracement. Cba is down 60 today although it's still in a trading range.

3.20 Just buying Macquarie Infrastructure Group at 142.5. Here's the daily. It looks like it's ready to run above 150 after a shallow pull back.

The 60 minute chart shows a buy signal at 141.

3.40 It's an odd day today. We're almost breakeven after having been down 30 odd points earlier. The Nikkei and the Hang Seng are down closer to 1% while US overnight futures are a little weak. Given that we've already rallied over the last couple of days and given the nature of the fall in the US - not the amount but the size of the reversal - it's quite surprising that we're doing so well.

4.14 The close was down 11 points or 0.3%. Long lgl and mig and short cba and qbe.

Lower high for the Dow? Wed May 20

After their big Monday rally the US scratched around to finish flat to down with weakness in late trading. Here's the daily chart. It's obviously speculative but if the DJI average fails over the next couple of days then a top could have been formed.

It's 12.10 pm and our market has fallen from earlier small gains to be down 14 points. I've got 3 positions, all short, in cba, mqg and qbe. Cba and mqg are down 0.6%, roughly in line with the market, while qbe is a bit weaker having fallen 1.3% but that's after a big rally yesterday.

I'm trying to stick to the idea of having very few, quite focussed positions. Just one or two really but very high conviction. With that in mind, I'm happy with qbe and I'm prepared to give mqg more time but will look to get out of cba. At the moment it's a bit weak and therefore going my way so I'll try to optimise my exit.

Qbe, below, looks like it may have completed a 3 wave retracement early today without having rallied back through the previous pivot at 2150 indicating that the stock is trending.

Mqg is less clear but might have formed a very flat pennant style correction. If it falls below the two near term supports of 3336 and 3303 then I think it can go to 3000-3100 quite soon.

If I focus in by looking at the 30 minute chart then it's not obvious which way this is going to go. Even if I anticipate this being a 3 wave or a-b-c correction (to use Elliot wave terminology) then the c wave could have further to go as it has had an initial surge followed by a tight range and could extend further with another pulse or two, up to 3500 or more.

By contrast, yesterday cba pushed back into the tightest part of a trading range after having made a minor break within that range 4 days back. The short position is via June 3500 puts which aren't overly sensitive to time decay and stock price movements at the moment so given my bearish stance I'm not willing to just dump them. The point for me is that I don't want to enter a position unless I'm very confident of a good short term move - a minor sell signal in a trading range is not necessarily the best quality indicator.

2.02 Unwound ncm as frustratingly it finally ran. My hedge cost me the chance to recoup earlier option losses. Hey ho.

4.10 As the indecision continues the market rallied slightly in the last hour or so to close up 7 points. The more I looked at mqg, the more I felt that while I see it as a retracement, it looks liable to rally another dollar or so. So I bought some stock to overhedge the puts and hence go long as it finished at 3426.

Golden dreams fade. Tue May 19

It's 12.15. It's been one of those days and weirdly, not entirely unexpected. Although I had 5 positions last night, it was really just the one trade and when the US market rallied with gold falling that trade went against me.

I've been on the verge of closing everything out a few times over the last week and it would have been the best thing to do. Having said that, we've rallied 2% after the US indices were up 3% and the Europeans 2.5% last night. It's plausible that we'll fall from here as the rally seemed technical after the big falls last week. In the context of the charts, I was looking at the potential for a further choppy rally before some more weakness. Now we've had some strength I have to assess whether this is actually something more than a choppy rally. It's always the hard part - it's one thing to decide to hold on to your positions in the event of a minor move against you - it's another thing to do it when it actually happens.

For the moment I'm continuing to assume that this is a retracement rally which will have no legs. Here's a 60 minute chart of the spi.

So far the rally has filled the gap formed on Thursday morning and stopped short of Wednesday's lows. If the spi stays below about 3840 then this is probably a time to add to shorts rather than cut them.

I've done that in cba and qbe. I've bought more June 3500 puts at 91 in cba and May 2050 puts at 28 in qbe as they both ran pretty hard early. In the case of cba, the stock has pushed back up into a trading range and I'm pretty neutral on it now so I'll probably look to sell these out again. In mqg and qbe, the rallies don't yet look significant, in a similar fashion to the chart above of the spi.

Gold fell last night after the rally could never really gain any momentum. I'd felt for a few days that my positions were wrong but I'd fallen in love with them and sometimes love hurts. Anyway, I've squared up lgl by selling the last of my stock at 297 (v 303) and shorting at 295 against my June 325 calls. Ncm looks weak. I was looking at a scenario of a 5 wave move with the correction since late April being a corrective 4th wave. However, it's gone on too long and is starting to overlap the top of the 1st wave which is 2938. I've sold stock at 2944 - first of all to hedge my May 2959 calls and then to take my overall position short.

2.58 Bought a few more qbe May 2050 puts at 20 for an average of 24 on the day. Stock was briefly at 2134 but back to 2106 now, still up 4% on the day.

3.27 Have unwound the lgl position selling out the June 325s at 6.5 (v 11.5) and buying back the hedge for 294 (v 295).

4.11 The market closed up 2.2%. The range was very narrow all day as demonstrated by the 10 minute intraday chart below.

I sold out the extra 91c options in cba at 87 along with a couple of mqg puts I'd bought for 175 at 110. Also squared up ncm, buying back the extra stock at 2950 as it closed back in the range.

Too much paper. Mon May 18

Markets are starting to fold as the issuance of new shares continues. The US fell about 1% and at 2.12 pm we're down 1% also. I had a late start today but most things have traded in a tight range so far. It's neither bullish nor bearish: if we were in a strong rally phase the market would have shaken off early weakness and been square or up by now and, on the other hand, we haven't capitulated either.

My feeling is that there's more room to move on the downside and it's probably a pretty common view but after a powerful rally there's not a lot of enthusiasm to chase the market down. My book is looking better today. I'm out of fmg at 256 (v 270) as it failed to hold my stop level of 260. Otherwise the two golds are slightly stronger while cba, mqg and qbe are down.

I'm planning to reduce the position sizes as the xjo index has moved to support.

3.21 Not a lot to add, the market is still down about 1%. I sold out a couple of qbe May 2050 puts at 69 (v 80) and the extra mqg May 3400 puts from Friday at 155 (v 116). I tend to like quick results but at the moment my positions are going my way but only mildly.

For example, cba is struggling to hold support overall and has lost all momentum but for today it has actually held quite well so I'll have to wait and see before I do anything here.Macquarie had a big bounce back on Friday but has fallen back again today. I'd love to see it slip below 3300 because I think it would then gap down but for now it's quite possible it finds support at a slightly higher level than last Thursday and attempts to rally again. I would expect it to fall if it had this second rally but I'd much rather it fell simply and directly.Qbe has a stronger short term downtrend than the other two but again it is above the lows of last Thursday and therefore could hold and rally again also.

4.16 The market was steady through to the match at 38 points down with lgl and ncm up on the day, cba down in line with the market, qbe down a bit more and mqg my best performer having fallen 3%.

Default response. Fri May 15

10.25 An earlier start to my blogging day...the US and European indices managed small bounces on low volumes but enough to provide us with a strong early bounce to be up 59 points (high was up 68) early. Rio has talked down rumours of a rights issue and they've bounced back 7%. My positions started a bit poorly but cba and qbe, while still up, have come back. Mqg was up as much as 130 and is now up 75. I've bought a couple more May 3400 puts at 116.

Gold overnight did nothing but lgl and ncm are up a little, slightly less than the overall market. I've bought some fmg at 270 on a hunch/minor buy signal.

The pullback from Monday's surge went in 3 waves; a gap, a choppy failed rally and then a sharp fall. It held above the breakout level at 260 though and with the early trade through yesterday afternoon's range I thought it was a reasonable buy. If it doesn't hold 260 I'd get out but since the correction might be complete there's a chance it can go back above 300. Probably not today, but perhaps on Monday if I hold it. That gives me a risk of 10 c or so and a potential upside of 30+.
I also bought some lgl June 325 calls at 10.5 yesterday to replace some of the stock I sold and take a bit of risk out of my book.

12.26 Very little has happened in the last two hours. The spi looks slightly bullish as though we might run later in the afternoon but that's about it.

2.41 This is a day to be patient. The market is still pretty steady, up about 48 points. My shorts have moved against me today as they recover somewhat following heavy falls yesterday. I'm sticking with the positions so there's not a lot to do.

4.07 The market is about to close for the day and every one of my 3 longs, 3 shorts has moved against me today in typical Friday fashion. I was worried about this yesterday afternoon and I was just wondering whether I'd be better off making it a rule to wind up my books each Thursday.

Here's a daily chart for qbe. It still looks poor but has had a retracement. I cut about a third of my short position yesterday around 2000 and the stock has rallied back to around 2050.

Mqg is much the same. Equally fmg and lgl still look positive to me but ground down against me all day. I hope Monday brings a return to trend.