The worm turns. Thu May 14

The glass is officially half empty now. It's 12 noon and the Australian top 200 has followed overnight indications to be down 110 points, just under 3%. I'm not completely surprised but disappointed with a couple of outcomes.

Although, I had 5 longs to 1 short; 2 of them were gold stocks, more likely to run counter to the overall market. It hasn't worked out that way with lgl and ncm falling and only performing slightly better than the overall market.

I've sold out of fmg at 280 (v 291) which was a good cut as it's now 268. I stopped out of mre at 69 (v 77.5) and I'm disappointed I didn't cut this at 75 y'day. It wasn't a technical cut but it had stalled below the previous day's high and I contemplated just getting out.

I'm out of ipl too, at 243 (v 251). I don't mind this but it's back near 235-240 support and I think I might be able to wait for it to form another short term buy signal and push through 257; especially with the overall market weakness. I had hopes that it could rally against the market because the US equivalent was up almost 2% last night. That's partly why I missed the opportunity to cut a bit earlier in the high 240s.

I'm irritated with lgl because it's done that bear market thing of working up to a nice breakout then promptly failing. I'm going to stick with it and with ncm for the moment as spot gold was steady last night and with the Aussie dollar weaker is stronger in local terms. It's also likely that I'm not the only one with this trade/hedge on and I'll need to be patient.

Normally I would expect the market to stabilise here and rally a bit as the selling has matched or exceeded that in US indices but it's not happening yet. In fact, although we could steady a bit, the spi is showing no signs of bottoming for the day.

12.26 I actually bought a few extra puts in Macquarie Group 3 days ago but I was a little embarassed to write about it as it was a dumb trade. I still have a little bit of a put spread on and I was messing about trying to clear that up but bought May 3400 puts at 105 instead. They immediately halved in value but now they've come right back and I bought a couple more at 175 this morning. Mqg has a very extended chart which confirmed a reversal yesterday. The fall is gaining momentum and I think that if the market overall continues to reverse this will fall hard with 3000 the first support.

12.44 My other short, qbe, has fairly predictably stalled at 2000. I had May 2000, May 2050 and June 2100 puts bought over different days. I sold out the first (and worst) of them, the May 2000 puts, for 60 (v 76). These had got as low as 11.5 so it's a nice recovery. I'm hopeful that the stock will keep falling but I wanted to get something back in case support holds. 1.24 The xjo is still slipping, down 117 points or 3%. My book is long 2 golds and short 2 financials. A scan through the top 50 confirms that the financials are looking weak with amp and cba as possible short trades.

1.34 Decided to buy June 3500 puts at 133 in Commonwealth Bank, cba, as recent support at 3550 failed.

It's in a range with the next major support just above 3400. I'm now short a third financial and I want to leave it at that. I sold some of my lgl stock at 302 (v 303) as the market gets slammed, now down 132 points.

1.55 Stockland Group, sgp, is suspended from trading while it issues close to $2bn of new shares bringing to just under $4bn the capital raisings in the real estate sector alone in the last few weeks. We've been underperforming over the last week and maybe the headwinds are too strong. Rio is down 11% today as the market fears a $10bn issue and bhp is down 5.4% in sympathy.

3.16 Bought a few more cba puts at 120 as it spiked back up. It's returned towards the lows, now, at 3548. Also, sold a few qbe May 2050 puts at 95 (v 80). The stock has since rallied a touch, back above 2000.
I'm reasonably happy that after a few days of indecision the market has clearly turned. It looks like a top is in place and given the squeezy nature of the last part of the rally, I can see the rationale for the sharp reversal we've had. It doesn't make me any more comfortable with my positions though! It seems like we've gone too far too fast and I fear that we could chop back up for a day or two.

4.11 The market has now closed with the xjo down 133 points, very close to the day's lows. I'm long lgl and ncm which were down 2.6 and 2.1 percent. The short positions are cba which closed at 3547 below the break, while mqg held well after a weak open but failed to regain support after it broke the lows of the last 7 days trading. Qbe closed just above support at 2000.