A few pitfalls. Mon May 24

Northern hemisphere markets had similar sessions to ours on Friday night, reversing from heavy early losses. There have been a few pitfalls this morning with no obvious market consensus on whether we've hit an interim bottom or not. I don't have a firm view on that either but I do think we could have another day or so of strength. My confidence was tested early because the Xjo retraced from early highs to be only marginally up. I'd been doing some bargain hunting and fortunately was buying in small installments because I kept getting better bargains until I thought I was digging a hole for myself. Things have turned around and at 12.18 pm the market is close to the day's highs at 4358 which is a rise of 1.2%.

The featured trade today is a long position in Centennial Coal. I'm in at an average price of 367 as the stock retraced some of Friday's afternoon gains before steadying up and firming to be square on the day at 379. This stock was in a trading range from mid August of 2009 to mid December and has sold off hard till it sits just above that congestion (I've only shown part of it from late October). There's no obvious buy signal yet and I'm really just looking at an oversold rally with my stop around the February low in the 340's.

Two factors encouraged me to stay with the buy theme this morning. The first is that the sort of reversal days we had on Friday nearly always have some sort of follow through although, admittedly, the second attempt to reverse is usually a lot more convincing. The second point is that I was disappointed at not having put on some longer term trades in my super fund on Friday in the teeth of the panic and, having missed that chance, I was grateful to get a second bite when a few stocks sold off early. Presumably a lot of other market participants must have been feeling and acting in the same way as me. One Steel, for example, may yet find its way down to 280 or 260 but having fallen rapidly from 415 in April, being close to decent support and rated highly by analysts then close enough is good enough in this situation.

4.15 The market kept driving on all afternoon and finished with a big rise of 90 points on the Xjo index or 2.1%. I was trying to take profits in Mmx amd Mre, for example, but still have been a small net buyer on the day. I'm not sure that the risk/reward is there now to be long the market but the individual stocks look solid enough. If it's a V bottom then I'm fine, if not I'll need to be nimble. I'll probably be on the sell tack tomorrow and hope that overseas markets follow our lead so that there'll be strength on the open.
The best bullish news today was real strength in the mainland Chinese markets.