Chinalco/Rio tie up off. Fri June 5

The big news is that Rio has cancelled the asset sales to Chinalco, a deal struck at the bottom of the market that looked increasingly poor for Rio as the weeks rolled by. In its place is a US$15 bn rights issue. Rio is now trading up 680 or 10% so it seems as though everyone is keen to get their hands on some of the new shares. Bhp has followed suit to be up 8% as it has agreed to pay Rio US$5.8 bn to create a joint iron ore venture in the Pilbara region of West Australia.
Of my positions Fmg has been the best performer, jumping on the back of this news. I took the opportunity to sell out at 317 and 340 (v 279). It's back to 318 now so that worked well.
Gmg is up again and I took the opportunity to close out the other half of my position at 37.5 (v 28.5). It's a big move in a couple of days and I'm happy to take it, especially being Friday when you could expect some profit taking.
US markets reversed back up as did oil, gold and base metals although the Rio issue weighed on the Aussie dollar. Ozl has bounced 3 to 90 and I've reinstated my Mre position buying at 92.5 as it resumes its rally and has traded above yesterday's high. Wpl is bewildering, oil was up 4% last night and it opened strongly but is now down 35 at 4285. I can only assume that traders are switching out of this large resource play to get exposure to Bhp and Rio. Technically I could cut my long June 4400 call position but I'm not convinced by the move so I'll have to think about it for a while.I was expecting the stock to hold at the high made 7 bars back but I think I'll use the 4200 support level now because the move doesn't feel right.
Mqg is up 108 or 3% at 3728 as my theory has proved false. I was thinking about this while having a swim yesterday afternoon and I realised that my logic was faulty. Many retail investors who already owned Mqg would have already sold out their old shares at the higher levels to lock in a certain profit knowing that they would be able to replace them. I would have been better to wait for my signal - it's one of the classic trading errors, dealing because you're worried about missing out rather than waiting for proof. Mind you, I'm not too fussed as I do think that the stock is topping out, it's just that I could be able to deal at a better price when it does make a signal and I'm down on yesterday's trade.

12.50 A quick cut in Mre for 92 (v 92.5) as it reverses after making a new high. The market was up as much as 85 points earlier but is now up 48. It's got the whiff of a Friday afternoon reversal about it. The ASX 200 made a new high relative to Wednesday also so there's the possibility of a completed top.

2.10 Not much has happened over lunch although I've just jumped back into Fmg at 327 as it's resuming after the sell off. Just a day trade really. I've also bought a few Cba June 3700 puts at 88 as it's hit the top of the trading range and traded below yesterday's low. 3.04 Out of Fmg for square as I don't want to get sucked into daytrading and it's lost all momentum.

4.03 The market has held quite well since midday, slipping a touch, to now be up 36 with the match out to come. I'm long Wpl which has kept sliding to be 4255 and Ozl which has held and is still up 2 or 3. I'm short Cba which has had an engulfing reversal day, where a stock makes a new high then reverses to close on its low below the previous bar's low. I'm also short Mqg which is still up about 50 on the day having been up 140 early on. I'm leaving the office soon so arrivederci till Monday.

Working for the Yankee dollar. Thu June 4

Looks like a few favours were called in and the US dollar was able to bounce back strongly on the back of comments suggesting Asian nations would stick with the world's reserve currency. Gold, oil, base metals and the Australian dollar fell as a result.

The ASX 200 is down 65 points at 11.25 am just off its lows with financials and industrials firm at the expense of resource stocks. Bhp is down 4% and Rio 5% for example.

I've sold out of my last Mre at 89 (v 71) but otherwise I'm just monitoring things. Qbe is one of the few financials to be down, sitting at 1892 below last Thursday's low. Fmg, Ncm, Ozl and Wpl are all down about 3% but are not huge positions and I'm not ready to cut them yet. Ncm is probably the closest, while it's still well above the previous swing high of 3249 there's been a major loss of momentum. If you take this is as essentially one move from mid May then there could have been 3 waves with today being the start of a 4th wave correction. If that scenario is correct then Ncm could chop around for 4 or 5 days so I wouldn't mind getting out of the last of my calls on some sort of retracement.

The new positions I put on yesterday afternoon have gone well, with Gmg up slightly at 30.5 despite Mirvac Group - another property trust - announcing a $1bn plus placement and Tcl also up at 419. I wish I'd also bought Telstra yesterday because it gave the same signal. I was concerned the move would be too slow but it's rallied from 316 to 324 which is as good as the other two and it's very liquid. I would have been better to get out of Ncm - I could feel the loss of momentum but was trying to play things by the book. Oh well, it's a fine line, listening to your intuition but not confusing it with wishful thinking.

11.45 Just gone long some Mqg at 3708 as it looks like it might have a go at the 3796 high from early May.

The 60 minute chart is positive, with yesterday's high of 3705 having been breached. There's an interesting situation in Macquarie where there's been a very generous Share Purchase Plan offering new stock to existing retail shareholders at a price of 2660. A friend of mine had less than a thousand dollars worth of stock but was offered up to $15,000 worth at the heavily discounted price. These shares come on the market tomorrow so the stock could come under heavy selling pressure. Therefore my trade is strictly for today. 2.27 Mqg couldn't decisively push through Tuesday's high of 3726 which was the next resistance so I've tipped out the extra stock at 3670 for a quick loss but I've still got the June 3200 puts. They're a long way out of the money but if the stock is going to have made a lower high relative to the early May peak then there could be a sharp fall. I'd probably add to my small short position tomorrow on weakness. I also sold out a quarter of my position in Gmg earlier at 32.5 (v 28.5) and they're now up at 35.

2.35 I decided to punt that reversal scenario in Mqg as it's dropping alarmingly. I've bought some June 3500 puts at 105. The sell signal on the daily is at 3553, looking at the chart just up the page. I'm only going on the failure in the 60 minute time frame but given the situation regarding the new retail shares I'm prepared to give it a go - and probably should have shown more caution with the stock purchase earlier!

2.51 Sold out of Tcl at 415 (v 410) as the stock reverses to be unchanged for the day after hitting 422 earlier. Also out of the last couple of my Ncm June 3282 calls at 146 (v 136) although hedging cost a little.

3.03 I'm short Qbe but have bought back some at 1891 because the fall has made my minimum objective and I'm not sure how much I want to push the trade.

I see this as a choppy fall in 5 waves. The 5th wave which started in the second half of May subdivided further into its own 5 wave structure. So there was a starting point just under 2150, a small fall then rally and a convincing fall to 1900. A three day rally made the 4th wave and today we've made a new low to possibly complete the pattern. This is not the level of complexity I'm normally fussed about but sometimes once something has formed you can impose a pattern that's useful for decision making. The upshot is that I didn't necessarily see the opportunity for a lot of momentum here which is what has happened so far today. There was an early fall to around 1890 to make a new low but then a narrow range while the rest of the market has been dropping. I'll probably square this up later on.

3.45 Out of another quarter of my Gmg at 35.5 (v 28.5).

4.15 The market finished with a loss of 83 points or 2.1%. I squared up Qbe buying at 1890, the equivalent of selling out my June 2100 puts at 210 (bt at 90 avg). I'm still long some Fmg, Gmg, Ozl and Wpl and short Mqg which closed close to its lows at 3620.

Fortescue puffing along behind. Wed June 3

Like an enthusiastic younger brother Fortescue is trying to keep up with the big boys in the sector and has jumped 20c or 7% to 300. I've sold out half my position there (v 279) on a combination of it reaching the first target and the usual profit taking sale. Overall, the market has rallied from a weak start on a slightly positive lead. It's a mixed market with no particular sectors predominating.

Qbe has been weak from the start and as it gapped through 1935 I was looking to sell out my stock hedge so as to put the short back on. I eventually sold stock at 1920 (v 1929 avg).The recent low was 1900 and it's possible we'll find support there and bounce again so I'm prepared to buy the stock back if necessary. I bought back the hedge in Mqg at 3658 as it found support along with the market after early weakness.

1.38 I've put on two new positions, both buys, in Goodman Group and Transurban Limited. One is a property trust and the other an operator of toll roads. They've both been lagging the market but they've made buy signals after what look like completed corrections to me. Gmg, above, had a run up from early March to mid April. The correction (if it's complete) was in 3 waves and now we're driving up. There was a small 4 bar congestion and today the stock has broken the high of that range. I'm long at 28.5.

The chart for Transurban, Tcl, is quite similar although it had a briefer rally into late March and a slow shallow correction. It looks like there might have been a higher low 3 days ago and as this stock is surprisingly volatile for an infrastructure play, I decided to buy some at 410.

This is a judgement call because 5 bars back there was a spike up which calls into question my assessment of this chart. ie you can see that it actually made a higher low and failed new high there. However, since it quickly reversed I've decided to class it as "noise" and take a smaller than usual position.

2.17 Telstra, Tls, has got the same pattern as Gmg and Tcl and has also made a buy signal. The other two tend to move further and faster so I'm sticking with them.

3.49 Heading towards the end of the market day the ASX 200 is up 1.4% when many thought we were due for a down day. I've sold some Mre today at 82 and 86 (v 71) and I've got about a third of my original position left. It's now on its highs at 90. I haven't been very active today; the two new longs are moderate, I've re-shorted Qbe and I've reduced position size in Fmg and Mre. I've also cut the hedge again in Mqg as the rally faltered, covering costs.

4.14 The Xjo kept rallying into the match out to finish up 1.6%.

Keep on truckin'. Tue June 2

General Motors filed for bankruptcy last night and was replaced in the Dow Jones Industrial Average by Cisco but as it's effectively been nationalised and will continue to operate in a slimmed down form the market focussed on good news re Chinese industrial production and powered on to new highs. Metals were up strongly except for the safe haven, gold, which eased off a few dollars.

I was uncomfortable with the number of positions I had so I've got out of my gold stocks as they stalled this morning, selling the last Lgl June 300 calls for 31 (v 22) and selling half of my Ncm June 3282 calls for 183 (v 136). I hedged the other half with stock which I shorted at 3350. I'm disappointed I didn't get the acceleration I was looking for but I think there's more upside for Ncm so I might get a chance to buy back my hedge if I think it's ready to run again.

I've also sold out some more of my Mqg hedge at an average of 3638 as it keeps surging - it's now 3692.

I'm now taking part profits more consistently so I've sold out some Bhp June 3600 calls at 175 (v 118) and Wpl June 4400 calls at 188 (v 130). I've sold half of my Minara at 81 (v 73) - it's the best mover in the materials sector on the back of the nickel rise last night.

There's one new position, a buy in OZ minerals at 93.2 average. The breakout in Ozl was yesterday really and I was concerned about chasing this but after looking at the chart it seems that there is a good, non extended base from a pull back to 70 a couple of weeks ago.

12.12 Almost forgot, also sold out of my last Ipl Sep 264 calls at 38 (v 16). It's up again and short of my target but I realised that my portfolio was too big.

1.09 Sold a few Ozl at 95.5 (v 93.2) as I'd chased it a bit and I wanted to take a little profit to cover costs. I've got sellers' regret in Ncm as it reversed after early weakness and started to do exactly what I was hoping; so I've bit the bullet and bought back my hedge for a loss at 3400 (v 3350).

1.38 I'm trying to buy some Fortescue at 278 as it made a buy signal when it traded at 277. It's in a large trading range but is making higher lows and with the sector very strong it should have its turn. It's liquid and can have good accelerations.

Just paid 279 for Fmg.

2.34 The market has been stalling for the last hour or so. I decided to sell out the rest of the Bhp June 3600 calls at 173 (v 118) because I'd got on the position late and it's more prone to reversals than many stocks because it trades in the US as well. I also sold a couple more Ncm June 3282 calls at 208 - really about 160ish after the hedging loss - versus a buy price of 136. This was because the stock has been chopping back and forth. I sold the last of my Mqg hedge at 3670. The hedge in total made 183c per option. The purchase price was 160c so they're running for a credit. There's a few weeks to go until expiry and they're still worth about 40c; in the event of a pullback I'd have the opportunity to buy stock again at good levels.
I've also been toying with taking off the hedges in Cba and Qbe as they're also running out of momentum.

3.50 The market is holding up pretty well at up 52 points, down 20 from the high but outperforming the Hong Kong and Tokyo markets.

Mqg has dropped to 3605 so I'm pleased to have undone the hedge.

I took off half of my Qbe hedge earlier at 1957 on an intraday signal. It's close to trading through yesterday's low of 1935 which would be my cue to drop the rest of the hedge. If it holds I'll reinstate all of it. I might have to wait for the match. Here's the daily chart.

4.14 The market rallied a few points into the match. Qbe held up, so I bought the stock back at 1942. Final positions are long Fmg, Mre, Ncm, Ozl and Wpl and short Mqg. Most of the positions are modest in size; for example, I've sold out two thirds of the Ncm, a third of the Ozl and Wpl and half of the Mre.

Sell USD, buy anything else. Mon June 1

The weakness in the US dollar continues and commodities are the beneficiary, at least in US dollar terms. For example, gold was up close to 2% on Friday night but the Australian dollar also rallied by about that much so in local terms there was no real gain. Nevertheless, after some early indecision the market seems to have decided to buy the commodity sector. Financials are more mixed with the exception of Macquarie which is up strongly.

I've only adjusted my positions slightly. As Mqg rallied, my hedge which was 1 stock to 2 puts created a long position. The equivalent value of the puts in terms of short stock reduced as they became more and more out of the money. Now the hedge would be more like 1 stock to 3 puts so I've started to sell out some of the extra stock for a small windfall profit. My selling price for this stock is 3390 (v 3160), a gain of 230 - or 115 per put based on the initial hedge - while the puts have dropped by about 90c.

Cba was my only short and is the strongest of the big 4 banks after having been mixed early. I'm close to hedging this. The recent swing high is 3587 - if it broke this it would be strong confirmation that the trading range was intact and I would try to fine tune a hedge.

12 pm My longs are in pretty good shape, with Ncm the best performer, up 78 at 3374. I had bought a few extra stock to go with my June 3282 calls which I sold out earlier at 3338 (v 3280) and I've just sold some Wpl at 3367 (v 3335) for the same reason as I already have June 4400 calls.

I've been re-reading Trading in the Zone by Mark Douglas. I enjoyed it last time around but this time I think I got it. A lot of the issues I'm grappling with are dealt with intelligently in the book. One thing he stresses is to take the tension out of trading by understanding and acting in the knowledge that you're constantly looking for your edge or set up and while each event can easily go against you, with a big enough sample size you will consistently make money. Now, most traders understand this intellectually, but to actually believe it so that you're consistent in your approach is another challenge altogether. I think I'm most of the way there as I had years as an option market maker where the whole approach is to work with a consistent edge and I know just how profitable and enjoyable it can be.

2 pm Mqg has pushed as high at 3510, it's 3487 now. I've sold out half of my stock hedge as the amount I need diminishes, with the profit on this adding up to 66c per option. The options are down about 120 today but the profit on the rest of the hedge is 83c per option as it stands. Cba has recently breached my stop level and once again I'd prefer to hedge as I think there's a good chance the stock can now push through to the top of the range or make a new high. I suspect it might have topped out for the day though so I'm waiting for a better opportunity.

2.15 I've been unsure about Bhp and Rio, our two biggest resource stocks, as they've been giving mixed signals for a little while. They both look bullish now. I like Rio slightly more but Bhp has cheaper options and a more liquid market so I'm leaning to a long position there.

I often like to get in on the first up day if I think there's a trend but since I was undecided I've been waiting for a break of the 3576 high from early May. That just happened so I've bought June 3600 calls at 118. The stock is extended on the day so I've put on half my position. The intraday chart is stalling so a late pull back could give me an opportunity to buy the rest at better levels.

2.45 Hedged my Cba now at 3599 as it's well and truly cleared the resistance level.

3.10 Reading the Trading in the Zone book, one of the points the author makes is that taking profits is one of the hardest things to get right. This was encouraging as I do find it quite tricky. He recommends an approach which is very similar to the Joe Ross approach. Take a third of your position off early when you see a small profit because most losing trades are up at some point; take another third off at a target level; and try to run the last third, perhaps looking for an obvious level or using a trailing stop. It's actually something I've been doing but perhaps not thoroughly enough.

Right now, I'm long Bhp, Ipl, Lgl, Ncm and Wpl and square Cba, Mqg and Qbe with no short positions; reflecting the recent strength. I've sold out the balance of my stock in Wpl at 4396 and I've just sold some more Ipl September 264 calls at 34 (v 16) as it has another good day. The resistance level should be January's high of 296 and I'll sell out the rest around there if it makes it. I'm also trying to define some targets for my longs to take off part of the positions.

3.33 Thinking about profit taking...I've sold out the extra stock I'd bought in Ncm and Wpl. I've just sold some extra stock in Lgl at 332 (v 328) along with the Ipl calls while Bhp is a new position - so I'm happy with that for the moment. Ncm actually looks quite explosive.I like the way it's rallying off a strong base from mid April and it's starting to gap up without really going wild.

3.51 Bought Mre at 72 - it's one I mentioned last week - as the resource stocks firm.

4.11 The market has closed with a gain of 2%. I'm long now, basically all in resources. More tomorrow.