Failure to launch. Thu Jun 16

It's really not happening for this market. Another new low followed overnight weakness with the XJO index slipping below the 4512 low to hit 4507. It's been my fear, with this reversal trade, that the overseas downtrends would provide too much of a headwind and that's proving to be the case.

One bright spot is that the sell off has been perfunctory, even those who have been correctly bearish must be wary of putting on further short positions here and speculative longs bailing out are likely to be pretty limited.

I sold out of OSH on the open at 679, simply because the stock was going to open down by only a few cents and it had been stalling for 3 sessions. Instead, I punted a couple of other things on an intraday basis which I thought were overdone.

I sold out a third of my FMG last night at 630 so I'm using 615 as the stop for the rest. I should have hit the opening bid of 625 in hindsight because it's down to 619, but there was an announcement from foundation investor, Leucadia, that they had sold 82 million shares which is a large chunk of its holding. The stock is one of the most highly recommended in the market so I wanted to see if it would respond positively to the announcement.

12.27 The market is hovering around the 4510 area with Chinese and Korean markets fairly hard hit. I stopped out of FMG at 615, close to the intraday low, while OSH is actually up now! Story of this month.

1.20 I've just been reading Tim Price's "The Price of Everything" blog. As usual, he is making the case about the debasement of money but it's a case worth making and his big picture view has been spot on. This time, (referring to Chris Martenson's blog), he argues that despite the Fed's attempts to pump up the US economy, there is no way that credit growth will see anything like the exponential growth of the last 4 decades. My view is that the new austerity mirrors that of the post depression era and, allied with the improbability of reckless lending recurring in the next generation, the next bull market may be a very long term in coming.

I've started playing with a longer term book but I fear that I'm premature; the market needs to be super cheap and charting much more cleanly than it is now. I'm inclined to sell out my positions, which are only marginally against me, and look for another opportunity.  Essentially, a buy write book is selling a put on the market and the downside risk is probably too large at the moment. Valuations are good but everyone fears that forward estimates must come down and until the downgrades are in, there's unlikely to be serious bargain hunting. The positions have broken support too, so having failed to write calls as I looked for more of a rally (no regrets about that, a strategy is a strategy), I can simply stop out.

1.40 The Australian market may well be due a rally but the weekly chart shows that the Asx 200 made a lower high in April and a break of the March low would confirm a trend change.

In the last year or so I've tended to do alright on the short side during sharp falls after good rallies (contrarian, reversals) but far less well in long slow downtrends. I need to get my head around the likelihood that we've seen the post GFC recovery. The big picture would imply a move below the 2009 low so I need to reverse my mindset to be patient with sell offs and impatient with rallies.

3.04 There has been another leg down in the market with the index closing in on the significant March low of 4477. Unless there's a strong rally in the last hour, the closing level will be the lowest since August last year.

I've been stopped out of all my positions. My longer term book has been postponed until I see a better base in the market but it hasn't been a disaster. I committed $300k into 5 stocks and it has cost me about 1.5%. If I had a 300 grand long across 5 of my more volatile trading stocks, the loss would have been more like 5%.

There's every chance I might be looking to trade reversal rallies in my trading watchlist over the next few days but I want to keep in mind the sense that markets are now structurally weak and longer term opportunities are going to be quite specific.

4.12 I was reading about confirmation bias in terms of the climate change debate earlier today and it was interesting reading the comments with people musing on the issue. It's not a fresh idea to traders, we deal with our own confirmation bias every day of the week and try to find ways around it. I've been well aware of being too bullish over the last 6 months but have really struggled to change my behaviour. In some ways, it comes down to the longer term road map I have of the market, and the index has come very close to confirming a major fork in the road with a close at 4479.2 which is less than 2 points above a weekly sell signal. If something like the FTSE is any indicator, the break is a foregone conclusion. This is one nasty looking chart.

Actually, that's not quite true...I've had a bearish long term view for a while but have still struggled to put on short positions. It's probably because our economy is reasonably healthy – despite the resources sector forcing up rates – and the difference is that the public has changed its behaviour. Plenty of companies are prospering but nobody wants to buy, it's hard to get my head around the change. One thing I've just done is to follow Tim Price's recommendation and sign up to Chris Martenson's blog. He seems to be an uber bear and the commenters come across as survivalists so it's probably a nice antidote to reading all the buy recommendations from brokers.

Punch drunk. Wed Jun 15

The market is groggy after taking so many hits lately and despite good follow through on Wall Street, the index is down 7 points after 38 minutes. The commentary is that we had our bounce on the China data yesterday, but US indices moved further than the gains implied by the futures in our session yesterday and our market is heavily leveraged to Chinese activity.

FMG has been upgraded by another broker and I've bought stock at 633 on a breakout. I still have Jun 650 calls but I need a chunky move to get my money back there and they expire in a week. My stop on this stock is 615 although I'll pull it up to 626 (just below today's low) if the stock can push on today.

10.51 Just noticed that there was a pre-market crossing of 18 million shares in FMG at 626. Wonder if that was the stock overhanging the market...

11.50 The index is down 14 as Asian markets are flat to lower. Reserve bank governor Glenn Stevens speaks later today so that may influence the market. The question is how hawkish will the rhetoric be? All the signs are that the RBA is too far ahead of the curve and may have tipped the non-resource sector into recession. Real estate troubles are brewing and plenty of businesses are struggling or going bust. The joker in the pack has been a change in the psyche of the consumer from spendthrift to scrooge. The extent of this change has been unexpected and I'm sure that nobody expected the belt tightening to go on for as long as it has. It seems to me that the mood of austerity is actually deepening despite economic conditions being broadly positive.

On top of that, you have the snowball effect of internet shopping. After a few years of buying the odd book or CD, consumers are spreading their wings and buying all sorts of products on the net. I've just bought some prescription sunglasses at the local optometrist and I see that I'm paying 2 to 3 times the price that I need to; now that I have my prescription details, I won't be wasting money next time.

The effect of this is that it won't just be bookshops that are closing down but all sorts of businesses besides. Fat retail margins have supported an edifice of ridiculous rents and property trusts may be the next domino. I can certainly see the rationale behind shorting Aussie banks too as their fortunes are inextricably tied up with this. Like most scenarios, though, it's a matter of working out what is priced in already.

1.25 Thanks Glenn....NOT. Down 20 points as the RBA governor re-iterates his desire to flay the skin off the back of the economy.

1.47 Still dropping, down 28 points but on low volume, characteristic lately. Stock futures roll over tomorrow morning so there may be more meaningful action then. Broadly, I'm expecting the low which was struck yesterday to hold. It was a strong reversal and you'd hope for more follow through.

WBC gave me the opportunity to sell calls at the stock level I was hoping for, a little below the last swing high of 2228. Unfortunately, I was too bullish after the reversal and let the chance slip by.

2.53 I'm getting cold feet about my long position in OST. I bought a few at 190.5 and did some better buying at 181. The stock has tried to rally off this higher low but the best it did was a brief push to 187.5. The stock is in a long term downtrend so the chances of this being a key turning point are low. I was simply looking for a rally to 195-200 but no acceleration has come through. Unless it starts to look great in the next hour, I'd rather just get out.

3.02 The bid was getting thin in OST, so I stopped out at 182.5. This despite Prime Minister Gillard's soothing words that the steel industry would be looked after under the new carbon tax regime. The magic pudding carbon tax regime.

4.12 The final loss was 18 points but the 60 minute chart looks ok, as if today was a retracement with the possibility of more gains ahead. A good performance after Glenn Stevens tipped a bucket of iced water into the lap of the economy.

Countdown. Tue Jun 14

Chinese CPI, PPI, industrial production and retail sales for May will be announced at midday. As far as I can tell, sentiment is such that we sell off on slowing growth and we sell off on recovering growth. With the index doing quite well to hold above last week's low of 4518, it's not hard to imagine a failure this afternoon.

Commodities and commodity stocks were weaker over the two trading sessions since last Friday's close. This was on the basis of Friday's trade data from China. US oil stocks were hit hard – see Greg Peel's round up on FnArena – but the WTI oil price fall was at odds with the rise in Brent which more and more investors now see as the benchmark.

10.30 The normal course of events is that investors take losses strategically as the Australian tax year end approaches on June 30th. This year, I'm not sure that there will be many gains to offset against losses so I doubt that this will have much influence. By the last week of the month, window dressing and bargain hunting will generally take over. I'm not convinced that sentiment will encourage bargain hunting but I can imagine that pension funds will be keen to see the index push higher from here and valuations are such that they can probably afford to throw good money at the market. Encouragingly, banks and financials have quickly shrugged off some early weakness and I'm hoping that this is an early sign of late year buying.

11.06 Spoke too soon.....there goes support at 4518 with the market having slumped 47 points.

12.02 The headline CPI is 5.5% cf expectations of 5.4% but because retail sales were below and industrial activity above forecasts, the initial reaction is reasonably positive. The AUD is rallying and that's probably the best proxy for risk appetite. Market down 28 at 4534.

1.43 The market is up 7, 4 or 5 points off a recent high at 4574.

As part of my longer term trading book, I've got a new long in SUN. Entry is 817 and stop is 780. I'm looking for a move to 850 before writing calls.

2.57 Almost a key reversal on both the daily chart and potentially the weekly too – although that would have to wait till Friday for confirmation. The market is up 24 points and the top 20 is outperforming with a rise of 0.8%.

4.12 Up 23 to 4585 which is not quite a key reversal day but definitely a reversal and the market broke the high of the last 5 days.

Suncorp closed well at 830.

Where to write calls? Fri Jun 10

After hanging on for a few days, wondering whether the market would pull out of its nosedive, there's some welcome relief as the index has rallied a considered 34 points after 37 minutes. The US rose a similar amount after a late sell off reduced the previous gains of around 1%. There's arguably more reason to buy the Australian market with the rate situation having eased and on recent form even a continuation of the trend channel would imply further gains of 60 to 90 points.

IPL has had a nice bounce today as fertiliser stocks respond to rising food prices. I bought a few stock yesterday most of which I sold out on the open at 383. My Jun 400 calls are alive again too with 8 trading days to go after today(holiday on Monday).

I have a new long position in OSH. Like most stocks, it has been grinding down, but it is above the March lows and the last 5 or 6 days have seen a marked reluctance to sell it down further. Long at 670, I had to chase it and I'm hoping for a pullback to buy a couple more.

The conundrum today is where to write calls against a position as part of my longer term buy write book. So far, WBC has been going well, got long on Tuesday at 2138 with the intention of writing calls on a rally. The conservative target is just below the recent swing high at 2228. The stock is at 2198 so it's pretty close.

My solution is to just keep a tight watch. I think I can give it room because the odds are good that the overall market will firm in the short term. The 60 minute chart is showing an acceleration away from the base around 2120 and I'm hoping that a reasonable level for selling calls against the position might turn out to be 2280, the next swing high.

11.33 The market is quite edgy and just accelerated down on a modest opening in the HSI. The rise was pared to 14 points. I expect the index to hold gains today but the public holiday on Monday may mean that serious buying is shelved until we return.

12.52 The Asx 200 is hovering around the same levels as Asian markets throw a bucket of cold water on our early optimism. The Kospi is down on a rate rise and Chinese markets on fears of an imminent rate rise. It should be largely irrelevant to us if we assume that the Chinese authorities are successfully slowing down their economy without crunching it. The key driver is generally interest rates as shown by US equity market performance relative to ours over the last year despite the better economy and better value on offer here.

1.05 Chinese trade figures are out but don't seem to be market moving, the issue is commentary about overheated property prices.

1.48 The 30 minute XJO chart looks promising with the market having held above the last couple of swings and started to recover. No acceleration though.

2.35 Fortescue is lagging behind AGO, which has a pretty similar chart. They're both top picks in the iron ore sector but the issue with FMG is that one of the early investors is said to be offering an 8% stake in the company.

Meanwhile, the gains are nearly all gone with the index up just 5 points.

2.47 It's typical of a bearish market that any negative news is seized upon so we're reacting to drops in Hong Kong and ignoring good news from Europe and the US. With respect to a down trend that has been in place for just about 2 months, I think the bears may have got it wrong today. I'm seeing more and more commentary on TV and the news wires about the change in tone from the RBA. Given that rates are a major factor in market performance and valuation is undemanding, the risks are in being short (or underweight). On top of which, we have an inflection point today with the break of yesterday's high. So unless the index falls back below 4520, short term direction should be higher.

.4.14 Looking forward to the weekend, it's been a slow, old week. The index held on and closed up 12 to 4562.

Not long now. Thu Jun 9

35 minutes till the May jobs numbers come out. Last month surprised to the downside and forecasts are for a recovery after the flood effect rolls through but with the gloom in the non-mining sector of the economy, the level of confidence in those predictions is low.

The first hour has seen the market recover from early weakness, down nearly 20, to be square or off a few points. The US market was not hit hard but commodity stocks were. Apparently, Interactive Brokers reduced the leverage they offer on Chinese stocks, so perhaps the commodity complex was caught up in that sell off. Commodities themselves were not hard hit, oil was up and base metals, gold were down a bit.

Best news for me is that LNC is up and running again. Back to 320 on a growing sense that the stock has an interesting story, I feel. There's an announcement about drilling for oil in the onshore Ackaringa field in South Australia where they are also looking to scope out coal reserves. There's also talk about more debt funded US oil acquisitions. Here's the chart. A wild ride but clearing away from previous resistance around 300.

11.24 Whisper it... the market is up, 11 points and rising as 11.30 approaches. A good start for my positions in FMG and OST too.

11.34 Growth in jobs but less than expected and part time gains offset by full time losses. It doesn't seem too surprising given the lack of faith in the predictions. The market wobbled and is just up a point now.

It's another piece of supporting data to the no rate rise view and I think it's supportive for the market because the economic slowdown is built in to prices but the fear of RBA overreaction was worrying people.

12.59 The market is holding on to 10 points gain. LNC is also holding at 320 and I think there's a chance of further gains this afternoon. This time I plan to sell a bigger portion of my holding.

1.45 The index is setting up for the obligatory failure to launch. Here's the 30 minute chart, hopeful a-b-c rally but then off a cliff.

 

2.45 Maybe this time it's different! The market pulled out of the incipient nosedive and a rally from here would imply a 3rd wave in the short term, below. It would also be the case that the index had failed to break the previous day's low for the first time since this swing began. Small mercies.

4.13 It's neither here nor there at the closing match with the market finishing up 13 at 4550. Out of some LNC at 319.