In hindsight, I was too cavalier in ignoring the danger signs in a couple of resource longs, especially given my misgivings about the market overall. I went long thinking that they would probably hold above previous highs so that there would be a clean trend still. When they overlapped, while not confirming a trend break, it was definitely a warning signal. Anyway, I've cut a couple of things like Minara this morning as they've failed to hold key support levels and they clearly have more downside than upside momentum. There's not a lot of opportunity to go short but I'll be looking to short rallies more and more now.
My overall profit has only been mildly hit because shorts in things like Aristocrat and Centennial coal are performing well. I still haven't cut Mmx though, which gapped so far - 10% soon after the open - that I actually bought a touch more with the aim of jobbing the stock. It was only a half portion but I'm still down more than I'd like to be on this one. Sometimes with these smaller resource stocks, everyone wants to dump them (or buy them) on the open and a simple stop is not that smart.
Challenger is the one that got away. I had it on my watchlist to short yesterday but I looked around and suddenly it had retraced early gains. I thought I'd wait for some strength into the close which never came. However, it's not very hard hit today and I'm short a few at 424 although I'm hoping for a little rally towards 430 so I can put the rest of the position on.
It's slightly marginal but the chart is panning out as I'd hoped with a grudging new high and a sharp rejection. I think there could be some continued weakness over the next couple of days so it's a quick momentum trade.
Interestingly, the past few times that the market has fallen heavily, I've tended to get buying opportunities because the stocks have generally held trends whereas today has suggested that a lot of stocks are moving into downtrends so my take is to look for rallies that I can sell or stocks that haven't fallen very far. It's quite possible that there won't be lot of opportunities today but, unlike the difficult last few weeks where stocks have lost momentum and started to chop, there should be a clearer picture from now on.
A change of pace with a longer term chart....the weekly for the Xjo shows that the rally has had 3 stabs at 5000 and finally made it but with decreasing momentum. The first leg of the bear market stopped at 5040 in March of 2008 while this rally has peaked (if it has done) at 5025. Elliott wave theory would allow the possibility that the next wave down could go to new lows. I kind of doubt it. Even if you take the long term bearish case, it looks more likely that the rally over the last year was wave a of an a-b-c retracement. So you might see a higher low for b and then a c wave which fails to reach 5000 to complete the pattern.
Anyway, this is conjecture which is of limited use. Only good as a long term road map.
3.25 The market has performed surprisingly well today, helped by the general less bearish tone in Asian markets (bar Japan). We're down 60 points and I could definitely have been more patient in cutting a couple of my longs. Still, I'm reasonably happy with things and have added some more short Cgf at 428 and shorted some Fairfax at a touch above 173. I cut the little trading long there yesterday as there was no strength in the rally.
The resources have taken the brunt of the punishment today but if the fall continues then attention should fall the way of industrials.
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