Gap filling. Mon Nov 23

US and European indices had only modest falls on Friday night so our fall in Australia was a little overdone. My working model is that the Xjo has peaked and although I'm not completely convinced, it seems like, say, a 65-70% chance. I'm more confident in the short term where I think we're filling the gap to about 4730. We're up 30 at 4716 at the moment, 11.25 am.
Of course, the nice thing about short term charts is that I'll know pretty soon if I'm wrong.

So far this morning I've bought Telstra and gone short in Fairfax.Telstra, above, is not the most exciting stock for my time frame but it's pulling away from the low in September and I've bought on the pivot created by Friday's pullback. The last two slow grinding upswings have created a base and the fact that the last swing didn't show any acceleration implies that it could be a larger pattern with a 3rd wave move to come. My main concern here is that the last swing had a deeper pullback and I don't want a repeat of that. Long at 333. Looking at the macro picture, if the market top is in place then this quintessential defensive stock could certainly go for a run.

Fairfax is one that I've decided to chase because of the change in tone of the market, typified by the rapid reversal in Aristrocrat. It ground up to a lower high on the daily chart, but with no obvious wave pattern within that upswing I was reluctant to take a reversal trade. However, the signal was at 171 and I was able to get short at 166. While this is a significant miss, I also think it's a high probability trade with a very good chance that a fall might extend below this month's low of 152. So far it's going my way, having bucked the trend to be down 3 now at 163.

Other than this, my existing positions are mixed with no significant changes so far. Qantas is showing promise. This is a stock where I went long after the first pivot only to see it push down further. I was confident that there should be another attempt to rally and I prefer to use the swing low as my stop but I was beginning to worry that this wouldn't hold.

11.58 I've taken my short position in Transfield back to a full position with a sale at 409 having previously bought back some stock at 420. I'm much more confident now that this has had enough time to rally and hasn't found any significant buying support. I'd love to see it break below 403 because it has now been in a trading range for 18 days and a break of a range often signifies a decent move.
1.58 The index is hovering around below resistance. It's up 33 at 4718, down from a high of 4725. Gold is the story of the day, up 16 at 1164 and finally starting to kick on in local terms as the AUD slips against the USD to 0.92 having peaked last week above 0.94. Because I'm usually looking for early stages of moves, it does mean that I'll be out of trends that keep driving on. Sadly then, I'm on the sidelines as Lihir Gold is up 11 to 369 today. No trading method is going to get you on every trade although it's some consolation that if I was adopting the same approach using weekly charts then this is a trade I would be long.

4.21 We've closed with a gain of 31 points and I'm still going with my working proposition that this is a gap filling rally. My two new trades finished at my entry price while the balance was slightly against me as a couple of the shorts that I was late into are having a leisurely bounce.

Ring them bells. Fri Nov 20

US stock indices fell hard at the open last night on further signs of slowing in the recovery they've had since the depths of the GFC. The indices recovered from the open but still closed well down. Although rates are going to stay low for a long period, fiscal stimulus programs are tapering off now and I find it hard to see further upside in the medium term as momentum in the US stock markets fades. Here's a monthly chart for the S&P 500. It's been a strong rally but probably a retracement rally and it might be difficult for it to test the swing low at 1200, the break of which triggered the big acceleration down in the middle of 2008.On a daily and weekly basis the trend is intact with higher highs and lows but a look at some of the other major markets shows that divergence is developing. For example, the FTSE and the Hang Seng are following the S&P 500 but the DAX, the CAC, the Kospi and the Nikkei have all broken their uptrends, like the Xjo, even if they haven't all developed downtrends.

Just over an hour into the trading day and we've fallen in line with US markets continuing that recent theme of underperformance given that we seemed to be expecting this weakness for the last few days. We're down 1.3% which is only just above the day's lows. My positions are slightly outperforming with the exception of Aoe, which disappointed expectations by failing to announce anything to excite the market. It has dropped 9 to 413. I sold a few at 415 (v 396) and retain just under half of my position. Bsl has gone through my stop level but has found support so I'm hanging in temporarily to see if I can exit at a better level.

Aristocrat is the one that got away - I was tempted to short it yesterday afternoon but decided to wait for a retracement to get in at better levels. It's the biggest loser in my watch list down 5.5% at 431.

11.36 I've put on a partial short in Awc at 165.5 as it looks very much like All. The index is still trying to rally so I'll wait before completing the selling. The Awc chart shows a lower low compared to September and (if it's complete) the bare minimum that you might expect from a retracement rally.

Ipl is an odd chart and I've decided to sell out my balance on a trailing stop as I'm not quite sure what to make of the daily while the 60 minute shows a 5 wave pattern potentially completed. Out at 284 (v 262 plus a divident of 2.3 c).Also out of Bsl at 283 (v 290.5), so slightly better than the stop level of 280.

12.40 Bsl is interesting actually, a fractional new low but generally holding support, it's now back to 285 so I could have been more patient. I'd actually been wondering whether this might happen and it could set up for another reversal trade on Monday.

On second thoughts, I'm probably too bullish. It did make a lower high in October and it's not surprising that there should be some support here.

In the meantime, I've completed selling Awc at 165 to average 165.25 and I've shorted Asciano at 161.5. Aio is more difficult but it looks like the retracement rally petered out rapidly after tracing out a choppy pattern. I think it's a reasonable reversal in what could be the early days of a downtrend with lower highs and lows forming.

2.06 The drop in Aoe gathered momentum so I sold the balance out at 404 (v 396). I'd normally like to give it the opportunity to rally after a pullback but the sell off has been pretty steep and there doesn't seem to be much support.
3.24 Interestingly Bsl is now up 2 on the day to be 288 so I could definitely have stopped out at better levels. I'm still in two minds about this one.
The market has held the line from this morning. I shorted All at 432 and bought it back at 425 as I tried to get something out of this missed opportunity.

4.10 Regional markets have strengthened during our afternoon session and we've lifted slightly. I'm now only long Csr and Qan and short Aio, Awc, Djs and Tse. It hasn't been a particularly good day but neither has there been any real harm done and the week has been solid. The increased possibility that we've made a high here suggests that there could be some nice trades on the short side in the weeks to come.
Overall, the Xjo closed down 63 points.

Nice day for a harbour cruise. Thu Nov 19

I've just been for a harbourside walk with a few visitors from interstate and overseas. I left them as they hopped on the ferry and being a beautiful day with a gentle breeze I'm beginning to wish that I'd joined them for the ride. It's 11.52 am and the market is up 10 points after a flat to slightly down night overseas. We've substantially underperformed European and N. American markets over the last few weeks and the local market is still in the doldrums.

I sold out the last of my Awc at 169 and 169.5 (v 163.5 and a few at 167). I realised I had another conundrum here, in that it was the first new high after a swing and therefore I should have sold out my first tranche on the close last night. As for the extras I bought, I figured that although I could make a case that they were a separate trade on a breakout and therefore I could run them for longer, it was simpler to just sell them out too. The chart overall is not particularly bullish, if it was then I might act differently. Anyway, I got lucky with slightly better prices than last night's close of 168.5.

Otherwise, my positions are pretty neutral but slightly in my favour.

12.58 It really is a ho hum day with the biggest riser in the top 50 up only 3% and the biggest faller down 2.3%. Apart from these 2 there are only 2 more stocks which have moved more than 2%. The Xjo index is up 4 points, the Nikkei is still suffering and is down 1.5%, but that disconnected from other world markets in September, while the Kospi, Shanghai Composite and Hang Seng are all up.

Tuesday was the key for the Xjo index. It reversed hard following a bullish lead, having just made a marginal new high. It indicated to me that we would need some backing and filling before confidence could be restored and so far we've had a rally to a lower high on Wednesday followed by further choppy correction. It's shaping up like a mini pennant style correction so, absent any big falls overnight, I would anticipate either tomorrow or Monday we'll get the next kick up.

Looking away from this micro picture, the rally on the daily chart is probably incomplete, it looks more like a pause for breath. However, the little new high just raises a slight possibility that this is all we're going to get.

3.33 The market is still doing very little, it was 10 points down at its worst but is back up 6 now. I realise that I've missed a bearish reversal opportunity in Aristocrat but I'm hoping that if there's a broad rally at some point over the next day or so then I might get another shorting opportunity. Here's the chart. The value of my approach to sell the first swing high after a pullback is highlighted here because I sold out two days back. I was wondering then if I should give it more room but with the benefit of a couple of days more action, it's interesting that with the lower low early this month, the stock has had a fairly standard retracement rally. I missed my chance on the close yesterday but it's a good lead indicator for a couple of my other stocks which are looking similar.

4.20 The index closed up 10 points on another quiet day. Aristocrat is on the horizon for a short, while Bsl and Qan are still edging down but not flirting with levels where I'd stop out. My two short positions, Djs and Tse, went down and Tse, in particular, is really setting up in a head and shoulders formation.

Just waitin' on a trend. Wed Nov 18

An early start to my blogging day because, frankly, I've nothing to do. It's 10.30 am and the index is up 27 points. Overnight the US market managed a late rally for a small gain while the Europeans eased back. Base metals, oil and gold held steady so there's not a big lead, just an unwind of yesterday's bearishness.
I do have a number of positions, 6 longs and 1 short, but there's no action required and nothing much on the horizon. I half expected the local market to peel off after early strength and it is still pretty early, but the signs are good so far for the rally to extend through the day.

11.24 The market has kicked on to be up 47 points. Aoe has had a good run to 416 and Awc to 174, both up more than 3%.

1.48 Arrow Energy is the story of the day, up 7% now at 426. I sold a few along the way at 420 but I still have 2/3 of the original position.

Mirvac group is a trade possibility as it has been forming a tight corrective range over the last week. It's not the sort of tight 1-2-3 breakout I prefer but the fact that it hasn't pulled back much, so far, from the surge off the lows is pretty bullish.

1.57 I've been thinking a lot about what I want from my trading business over the course of this year and many of the ideas are coming together. For example, consistency, so that I take a trade in one of my stocks (almost) every time and there has to be a good reason not to take it. This makes it easy to get into and out of positions without second guessing myself or the market. It also will make it much easier to increase position size once I'm comfortable that this particular approach works for me.

3.11 The caution from yesterday has returned and the gain is only 14 points now.

There's a reversal trade in Djs on the short side. It made a new high yesterday at 596, marginally ahead of the early October high of 594. It looks to have completed a 5 wave rally too. I saw this possibility yesterday but I was reluctant to take it earlier thinking I'd wait for a lower high. However, it occurs to me that if this was a buying opportunity I'd probably be keener, so looking at it again and accepting that I'll miss the entry point of 585, I'm looking to get short here.

3.22 Sold the first part of my position in Djs at 576. Also, sold a quarter of my Ipl balance at 284 (v 262).

4.10 The market closed up 10 points, reacting to bearish markets in Japan and Hong Kong perhaps. I finished shorting Djs at 579 to average 577.5. Earlier in the day I sold a handful of Awc at 172.5, they finished unchanged at 168.5. Arrow Energy was the star of the day, holding most of the gains to finish at 426 while Ipl gets an honourable mention for finishing up 9 at 285.

What does it take? Tue Nov 17

Overnight European and US indices were firm. Here's a daily chart of the S&P 500 index.

The S&P 500 is broader and more indicative of the market than the DJIA so it's the best comparison to the XJO index below.
We're lagging by quite a distance and the market at 11 am has faded to be up only 20 points despite the strong lead being assisted by gold, oil and base metal price surges.

Fortunately, I followed through with my plan to finish selling out the stocks that had made a new high after a swing against me. The sales were the last of the Cey at 355 (v 328), Fmg at 432 (v 402), Ozl at 130 (v 120.5) and Sgp at 414 (v 385.5). These were all better than last night's closing prices. In addition, I sold out the rest of the extra Ipl from yesterday at 280.4 (v 268) as it reversed after a strong open and a couple of Bsl at 297 (v 290.5). I also started to close out my short in Gff - I missed this yesterday afternoon - buying back about a third at 153 (v 157.2).

Awe has had a choppy rally but it pushed on this morning to a new high so I'm looking to close this out by the close. Usually, I'd want to wait until the close but with the market pulling back I decided to sell some at 282 (v 267).

I bought a small amount of Asciano this morning as it pushed up through resistance. This is more of a 5th wave type trade and I'll probably just look for it to move to the top of the trend channel.
Yesterday, Ost fell as low at 303 after I stopped out for 308 but then reversed to 314. It's up again to 317, has been as high as the breakout level (briefly) at 319 and I'm wondering whether to re-enter on the long side.
11.32 Just gone long Qan at 278, looking for the next leg up.
The market is only up 3 points now.

11.52 Also added to Awc at 167, as it follows the Qan lead. I had sold about half of the position on the run up so I've reinstated a full position.

1.37 The market is on its lows, down 7 points, with the rest of the region slightly soft. Most of my positions are a bit worse although Awc is doing well, up at 171. I've got buyer's regret in Asciano - I'm trying not to take 5th wave type trades whereas, Qan, which is back down at 276, is not an issue for me.

2.50 Down 23 points now and given that we made a marginal new high this morning, it opens up the possibility of this being a lower high on the index. I suspect not, but it did inspire me to get out of my silly trade in Aio at 161.5 (v 166.5). Fortunately, this was for less than half of my usual dollar amount.

3.50 I've bought back the balance of Gff at 154, averaging 153.5 against a selling price of 157.25. The market hasn't managed to bounce much yet but I'm happy enough with the positions I'm keeping overnight. I'll be selling the last of the All and Awe on the match as they've pushed on again. Aristocrat may have more in it but I haven't got much left, otherwise I'd keep half to try for a better price in the morning.

I've been trading this as a reversal but if I'd only just got long with a more traditional 1-2-3 breakout, I'd probably be willing to stay long and wait for a stronger move. I was thinking about getting back to full size on this yesterday and this morning but was put off by the general pullback.

4.14 Out of All at 477 (v 430) and Awe at 281 (v 267) as the market closed near the lows. I also took off a quarter of my short position in Tse at 420 (v 412.5) as it's looking more and more like a trading range.
The Xjo index finished on the lows at 4729.4.