Over the hurdle. Mon Aug 2

US GDP at 2.4%, compared to expectations of 2.5%, was a miss that was the catalyst for a 1% plus drop in the DJIA early on, but better than expected July figures, such as the Chicago PMI helped the US market to close unchanged. Revisions suggest that the recession was worse than figures showed at the time so although growth is not strong and is slowing as inventories are rebuilt, the US economy is managing to grow without the benefit of government programmes.
The Australian market underperformed in July relative to other indices and my main concern last week was that a GDP led sell off in the US would give us no chance of catching up. Now that the hurdle has been cleared, we've been able to rise above 4500 again and I'm hoping for a push towards the June high of around 4620. The Xjo is moving into the 5th wave of a leg up from the July 19 low so it's possible that this rally peters out short of that and perhaps reporting season could put a dampener on things. Still, I'm really quite bullish because valuations and better than expected economic figures overseas should drive us. There's also the entry of Indian companies into our resources sector. Adani are reported to be about to put pen to paper on the deal with Linc and although the company has said that no deal has been signed, the stock has leapt another 10% to 175.

I took the opportunity to buy back into a few stocks that I'm bullish about and wrote off last Friday's prevarications as the result of having got on the wrong leg. I bought some Fmg, Ost and Pna at 434, 304 and 57. The featured trade though, is the other new long in Challenger. This had two choppy legs up and then a milder pullback which is also quite messy. I'm taking the view that this is likely to be a higher low and bought at 353. The weekly chart gives a clearer picture and since early January, Cgf has traced out a slow, moderate retracement after a strong rally off the GFC lows. If this turns out to be a higher low, with the first two legs of the rally having played out, then the stock could move into an acceleration phase as it gets re-rated. It's quite cheap and could, I suppose, be an attractive morsel in a recovering financial sector.

With my trading style, I'm not going to be a long term holder, but if I'm confident that an uptrend has formed then I'll be trying to trade as many bullish swings as I can.

2.28 Linc is the story of the day again, it's up 18% at 188. There are just under 500 m shares on issue so the mooted sale price for the major coal asset is worth about $2 a share. The figure bandied about for the two smaller properties is $500 m so that would be another $1 per share. A quick scan of the last set of half yearly accounts from late March shows that there's not a huge amount of debt and there is over $100 m of accumulated losses which should offset some of the potential tax bill from the asset sales.

This rough stab at some fundamental analysis is to help me assess where the stock can get to. This year's peak of 184 has been passed this morning and the previous high, from May 2009, was 268. Given the losses, after allowing for tax at say, 20%, 240 might be close to the value of the cash on hand so 268 might be the sort of level where the stock would find serious resistance. There have been problems emerging with UCG (underground coal gasification) lately, regarding poisoning of the water table. This may or may not ultimately affect Linc but is a reason for market caution surrounding the sector lately. On the other hand, Linc have been astute accumulaters of coal, oil and gas leases and the market might start to value that lease bank if these deals come off.

I bought a few more shares this morning at 174.5. Here's the weekly chart.

4.19 The index finished on its highs, up 48 points and Linc finished just below its peak. Asian markets are good to strong as well and US overnight futures are up about 0.7%.