Looking closer to home. Mon Feb 21

There's such a big gap opening up between the stockmarkets of the loose money and the tight money economies. The European and US indices continue to track well but Australian and Asian markets lag well behind. The local index is down 37 points after an hour and a quarter despite reasonable overnight leads again. The focus is on further Chinese tightening via increased reserve requirements and the large resource stocks fell sharply overnight in steady to firm markets despite the underlying commodities performing well, with only copper slipping.
My short position in Fortescue is going quite well early on, with the stock down 14 at 674. The future is bright for the company but a number of analysts reduced their valuations modestly on expansion risk. With Bhp down 2% and Rio down 1.5%, I think there's a chance of a fall to the bottom of the range around 640 over the next few days. Market participants are still digesting the result though so a rally is not out of the question and I need to keep a close watch.

I've bought back a couple more of the Pdn short at 502. It's been as low as 497 and is sitting around 500. I'm hoping that the bottom of the range fails to hold.

Aristocrat reports on Thursday and it has been recovering in the lead up to the numbers. I've just reinstated a small short at 304 and will try to add to that on the back foot. My stop is at around 320 and I think All can edge back towards the recent mid January highs before failing again. My real risk here is an unexpectedly good result from a perennial underperformer so I'll keep the position size moderate.

My feeling is that the US consumer may be spending a little more but behaviour is still restrained. Australia has had nothing like the impact from the GFC that the US has had and yet consumers here have had a big scare and savings rates have gone from 2 to 10%. That's in an economy with large, comprehensive, state mandated pools of superannuation money.

Having been late to get into the sector, I've been slow to recognise that the party is over (for the time being, at least) in the rare earth stocks. Lynas bounced quite well off support at 170 but I've put on a small short at 188 on a minor sell signal. It may well find support again at a higher low in which case it would look quite good, but Arafura has failed to hold and the bubble could be slowly deflating.

11.46 The Xjo is down 1% or 49 points, at 4888. There has been a small bounce off the recent low in the first serious attempt to rally today. Telstra is ex dividend which accounts for nearly 7 points.

12.55 Early indications are for the HSI to open down about 0.4% with the mainland markets flat. The Aussie market is rallying a little. Fortescue has stabilised at around 670 so I've sold a few of the puts at 11.

Gold is also moving higher which has been unusual lately. It has generally been moving up in the overnight sessions. Sbm has been weaker and I've added to my position at 203.

1.26 The HSI is down just 0.2% and that's helping the recovery. The loss has been cut to 33 points.

Arafura just came out of a brief trading suspension as they highlighted the continued strength in the price of rare earths. It has helped the stock back up to 123.5, down 2.5, after being as low as 117.5. It seems like transparent share price management which is not unreasonable in a stock which has to fund a large project, but I'm wondering how long the bounce will last. Lynas has followed it up to 190; I didn't short many at 188 and sold a couple more here.

2.22 Chinese PMI numbers showed that manufacturing has slowed for the 7th consecutive month. Hong Kong shares sank again on that news but they're hanging on for only a moderate loss. The HSI is in recovery after sharp losses following golden week and this resilience has continued into a new week.

Given that the tightening cycle is expected to carry on for some time, the PMI numbers are not positive for the Aussie market. But we might have been oversold this morning so the Xjo is picking up - down 30 now.

3.42 The gold price continues to be helped along by the domino (should that be backgammon?) effect in the Middle East. Most of the gold stocks are up, Sbm is an exception but has recently been one of the top performers. My other gold long is in Resolute and that has been a sleeper but looks as if it has managed to hold support. A break above 142 would be pretty positive.

4.18 The afternoon was a let down - Chinese markets did very little and the Aussie market responded by sinking into a mild trance. Down 37 at 4900 exactly; neat and tidy anyway.

I didn't do much in the afternoon. Shorted a couple more Lyc at 191 which is where they finished and a few more All at 307 (last 308). Bought back more Ozl at 167.5 and Pdn at 496.