Greek tragedy. Wed Dec 9

The downgrade of Greece's sovereign debt was enough encouragement for European markets to topple over last night by around 1.5%. The US markets dropped by 1% and after an hour and twenty minutes the Australian market has settled somewhere in the middle with a fall of 1.4%.
It has been a non trending period for most markets as bullish momentum has ceased and been replaced with range trading. My opinion has been that we were very close to a top and in Australia had probably seen it. For the sake of my trading I'd like to see a downtrend set in, a retracement of the rally since March. I think that will probably develop but until then what we're getting instead is a lot of reversals with little follow through. This has led me into the room of mirrors to think about strategy and my conclusion is to take the reversals as early as possible and get out quick. If a stock is in a genuine trend then I'll try to run a position for longer, as I've been doing in Awc, but otherwise it's guerilla stuff.

The first of my 3 short trades this morning is Asciano, fitting the bill of reversal trades. I'm short at 172.5 as we've ticked below yesterday's low. My read on this is that the last surge up was a 5th wave which made a small new high at 176.5. In the short term it ran dropped and surged again yesterday with no follow through. It's a risky trade as it's a counter trend reversal but on the plus side these usually move fairly quickly. My stop is at 177 and I think a reasonable short term reversal would see it back into the 160-164 range.

Fortescue had the surge to a new high and made a one day reversal on Monday. It just about held up yesterday but is slipping below yesterday's range. I've shorted at 413.5 average with the Monday low having been 417. Like Aio, it's not exactly dumping and seems quite well bid, so I'm a bit nervous but then again, the whole market gapped down and was always going to consolidate for an hour or two. The late afternoon will probably be the acid test for these reversals.

The last short is in OZ minerals. This one has been throwing dummies for a little while and had me grasping at thin air. I'm hoping I've nailed it today on a minor 1-2-3 sell signal which is tight enough to take even though the stock is in a trading range. I've sold half at 118.5 and expected it to rally a little but unlike the other stocks, it's not looking good intraday and has fallen through last week's low, giving a second sell signal and the suggestion that this fall could extend further than the simple reversals. Just sold the second half of my order at 117.5 to average 118.

1.41 The rally from early lows has been quite strong and we're now down only 35 points or 0.7%. Fortescue has rallied against my short to 420 and I'm having misgivings about having put this on quite so far from the recent high at 444.

3.48 Nearing the close, there's a strong possibility of the Xjo finishing on its highs and closing more of the gap formed by the opening drop. It's been one of those days that calls for patience if you're short.

I've mentioned that I've been looking at ways to improve my performance. One of those is to take off positions in part or in full at obvious points. For example, I'm short Tse after it broke support, rallied back to the break down and then started to fall again. There's no real downtrend apparent yet and I've worked out that until you get one, especially with reversals, two or three days is often the optimum holding period. In this case, it hit support early at 381 and bounced rapidly so that now it's up 3 at 394. I missed the chance to buy half back in the low 380s. Next time I'll mentally prepare as you sometimes get a small window of opportunity and need to be ready.

4.17 The market didn't quite fill the gap but closed near the top of the range. I've shorted Fairfax at 160 on the match out. It's been in a trading range for a little while since peaking in early October and, like many stocks such as Tse above, it has the look of a head and shoulders topping formation without having broken down convincingly. I've used a small 1-2-3 sell signal as my entry point and because it's still in a range I'm going to use a fairly tight stop with this one.

I bought back a couple of Djs today at 544 (v 561.5). Again, it's in a trading range so it's more a judgement call as to when to buy rather than in a clear trend when the ideal is to run the position for as long as possible. Otherwise most of my positions finished respectably with Fmg peeling back to 414 by the end.