Stand down Twiggy. Wed Jun 1

A strong night in terms of index movement but no fillip for us because it was fully anticipated. Base metals improved slightly and oil was up a couple of percent. With 40 minutes gone, the index has lost an early 5 point lift to be off 8.

I'm out of LYC at 234 because there was no carry through buying at the open. LNC has slipped 8 to 320 so I'm glad I sold a handful yesterday afternoon. I hope it's a shallow pullback like we had on Friday and Monday.

IPL is down 3 to 381, which is disappointing because US fertiliser stock, Potash, was up again and there's often a correlation. However, FMG is promising. The stock has traded as high as 661 which means the breakout looks on. Andrew "Twiggy" Forrest has stepped aside to be Chairman with the new CEO being the well respected Nev Power. It clears some of the uncertainty if Forrest is required by the courts to step down from day to day involvement in the company.

11.25 I'm out of KAR at 657 (v 652). Given that the index is stalling at the top of the trend channel, I only want to be in the 3 positions which I'm confident about. Here's the XJO chart.

11.32 Q1 GDP is in with a flood led drop of 1.2% which is better than expectations and the index has ticked up a few points. Chinese PMI figures are due out later today.

12.38 Chinese PMI for May is 51.6 v 51.8 so it continues the very gradual slowing of growth. It hasn't scared the horses; the market here and indices in China are consolidating after yesterday's gains. The Asx 200 is 3 points lower.

2.35 Back to the office to find the index up 12 but my stocks little changed. LNC has been sitting between 315 and 317 for a couple of hours and I've been tempted to buy some back but there's no real need yet. The 60 minute chart, below, has no obvious buy signal.

FMG has just come out of suspension following an announcement that the company is bringing forward its 155m tonne a year expansion to 2013, a year earlier than previously planned. The stock has gapped up to 667. Here's the 60 minute chart for FMG with the potential for some more acceleration, I think.

4.05 It looks like the index will match lower. The market has been slipping from the peak at 4725 to 4714, up 6, and now the SPI is selling off.

FMG had a surge and reached 677. I had some intraday longs which I sold at 670 (v 659) but I'm leaving the calls as I'm hoping that there are bigger fish to fry with those.

I'm starting to buy a couple of OST but I'm not sure if that's going to pan out so I'm going slowly and will either cut quickly or write about the trade tomorrow...most likely.

4.14 Not too bad, the index down 1 and FMG held quite well to finish up 17 at 669. LNC couldn't recover and slid further to close down 14 at 314.

One for the road? Tue May 31

With the UK and the US markets closed for holidays, the early 35 point rise in the market is a surprise. The overnight SPI futures contract was indicating about a 14 point rise which was a reasonable guess, essentially a reversal of yesterday's drop. Maybe it's some end of month window dressing but I'm happy to see the rally. If the Asx 200 is going to halt at the top of the trend channel then this might be as good as it gets so I'm looking to sell out of anything that looks unconvincing.

First the bad news, I stuffed up my exit of the last few PDN. Selling on the open at 312 after twice trying and failing to sell at 322 on intraday retracements yesterday. Stock is 318 now. The good news is that 2 of my 3 main longs are doing well. The best is LNC which is continuing on after a few days consolidation. Up 9 at 312.

I was looking for coal companies with bullish charts yesterday as coal demand seems set to keep rising. I couldn't find anything and although LNC is, strictly speaking, a clean energy company, it's a nice coal play in the short term as it looks to sell its coal assets.

FMG is also firming, up 7 to 647, although the stock needs to hit around 660 before the breakout looks compelling.

The last of my larger long positions is in IPL and that's down 1 at 386 but still charting ok. My stop is below the 376 swing low and the obvious risk is that there's another leg down, although my view is that it would make a higher low.

I have a small long position in KAR. This has a similar chart to IPL (above) but is slightly more bullish having made a higher low in mid May. I sold a couple out at 655 (v 652) this morning.

I'm out of the AWE trade at 144 as it's stalling below resistance. This is a judgement call, the stock could still push on but with the overall market potentially stretched I want to stick to a few trades only.

My last position is in LYC and I intend to sell this today as it goes into the MSCI index. The stock might have been expected to run but it seems as if there are investors who are happy to sell into the index buying and the stock is up just 1 at 227. There's a big decision looming regarding the Malaysian refinery which is still under construction and news reports suggest that approval is not a sure thing. It might be wise to steer clear of the stock for a while and keep an eye on ARU which would be a beneficiary of delays at LYC.

12.12 The market is up 44 and stretching the downtrend channel. I'm getting tentatively hopeful that the rally might have more legs. Figures released at 11.30 showed Q1 exports lower, due to the floods presumably, and a generally softening picture vis a vis the consumer. No surprise again as the two speed economy is affecting most people.

1.41 LYC has begun to move as the weight of buying starts to tell. I bought some extras at 227 and they're in front with the stock at 230. I suspect I can afford to hold some of my position overnight (whether I want to will depend on how it closes) because there'll be more re-balancing activity tomorrow and I think the environmental approval process still has a week or two to go. Around the 230 level is obviously quite strong resistance; there were peaks in early January and early March and now the stock is once again bumping against this level. If there's a late pop today, there could be some technical buying and maybe some short covering.

2.47 The weekly chart of BHP has a buy signal, and they're often quite reliable on the weekly charts. The Asx 200 chart isn't quite there, held back by the banks.

I've bought some IPL June 400 calls at 6 cents each because if the market is able to make a sustainable recovery, it won't be much of a stretch for the stock to get to 420, 430. The chart is higher up the page.

4.03  I sold out the extra LYC at 233 average. The market overall is near the highs, up 46 points and is reflective of strength in the region with the HSI and the Nikkei both up strongly.

4.12 The Asx 200 closed 41 points higher at 4708. I sold out a few more LYC at 237 and have 10k left. I also sold 5k of LNC at 328, leaving a balance of 25k. The stock looks red hot but I wanted to take something off the table. Here's the daily. In Elliott wave terms, it looks like the 3rd of the 3rd. It closed at 328, up 25.

The month is over and it's been smack on budget thanks to two good days late in the month. A stock that's in a genuine bull market like LNC can really make all the difference. Mostly I'm chopping around in stocks that are going nowhere, making a few dollars here and there.

I've been missing one of the hot sectors in the market at the moment, which is biotech, but I'm starting to track a few stocks and might rotate a couple into my watchlist soon.

Wishy washy. Mon May 30

A mildly positive lead has meant little because it was pre-holiday trading and today is seeing a pullback after the good recovery on Thursday and Friday. Down 15 after an hour.

I've sold half of the AWE position at 141.5 (v 137) as it's an a-b-c bounce and remains in a downtrend. The stock looked ready to fade away but is perking up slightly. The drilling program is underway but is due to take 37 days so it's not a high conviction trade for me.

PDN is not dissimilar to the AWE chart and it has sold off after hitting intraday resistance at 328 following small rises overnight in the Toronto listed shares. I've only got a small position but missed my chance to stop out around 325, 326 because I wanted to give it a chance to break 328. Now it's at 319 so I'm thinking of tipping the balance out on a retracement.

I'm writing about these two unexciting trades because they're the sort of bread and butter trades that I've found to be worth taking while you're waiting for the great ones to come along. Usually they pan out to be simple c waves that offer a few cents profit if the entry and exits are right. Obviously, it's better to go with the primary trend and ignore these but I tend to take them when I think the trend might have turned. In those cases, the moves can be quite hard and fast as you benefit from the element of surprise...short squeezes, unexpected good news etc.

11.44 The market is falling slowly, down 22, as the selling/shorting of the major banks resumes. ANZ is the best performer with a fall of 1%. Resources are largely unscathed but I guess the general weakness in the futures contract must derive some arbitrage selling.

I still have 15k of LYC which are back to my entry level of 222. This is slightly surprising but unlike AWE and PDN, the stock is not in a major downtrend and I've ignored the potential tight stop at 225 (break of Friday's low) in favour of the last swing low at 213. One of the reasons for this is that the stock is to be added to MSCI global standard indices as of the close of business tomorrow.

1.51 A slight improvement had us close to square but it's back down 14 now. I'm not doing any new trades today because on recent performance, the bounce might be near the end. I'm long 5 or 6 stocks and plan to be reasonably quick to cut on renewed weakness.

2.49 The FMG June 650 calls are under some selling pressure so they're down to 13.5 despite the stock being unchanged. I have 500 of them (or 50 in the old money), roughly a layout of $7500 for the upside on 50,000 FMG above 650. If the stock breaks lower, I should be able to short some and get a bit back on the downside, but for the moment I think the chart shows some promise.

4.10 We've got another day of this dreary trading coming up tomorrow with the US public off work for Memorial day. It's a bit of a strange habit really since we no longer react to US movements so predictably now that China is such a big influence. But it is what it is and the final result is a loss of 17 points to 4667.

Little engine. Fri May 27

The market is the little engine that could this morning. The weight of yesterday's rise caused the wheels to slip early but the Asx 200 has gained some traction and chugged up into the black. 12 points higher at 4672 after the first hour. The overnight lead was also a tale of triumph over adversity as indices clawed back early losses to post small gains. Commodities were pretty flat and the AUD is a touch firmer.

FMG isn't there yet, a break of 659 would be an encouraging sign that a decent rally is in the offing. However, I was looking for a trade through 636 to at least imply some short term strength. The stock opened at 640 and fortunately there was some broker selling in the June 650 calls so I was able to get the balance at 16.5.

12.04 It's all pretty quiet now, the index is up a few more points but my stocks aren't doing much. LNC is retracing some of yesterday's strong gains to be down 5 at 303 and AWE is starting to move, up 4 at 141.5.

I have a small new long position in KAR at 653. I had planned to pay 649, was distracted for a few minutes and the stock had popped. So I paid up and now the stock is back at 649. I'm looking for another leg up with a stop below Wednesday's low. The big picture has an overlapping retracement which so far has held above the March low. Of 3 broker comments this month, one has reiterated a buy, one has upgraded to buy and one has initiated coverage with a speculative buy recommendation. The target for these 3 averages 1070. The other 2 analysts haven't commented since March when they had 855 and 796 targets respectively.

1.45 Still grinding up with support from Asian markets and higher US futures. Up 25 now but a mixed bag as far as my positions go.

Paladin had a good day yesterday and is pushing higher today. This is one where I bought a reversal after 5 choppy waves down. It was problematic for two reasons: a, it was quite a strong reversal day when I bought so the stop was 7% away from my entry (303 v 324) and b, given that (worst case) stop, I needed to actively stop out on the first sign of momentum failing. The next day after entry was a doji, which was not excellent but only a warning sign since it did add slightly to the previous day's gains. However, the following bar, last Friday, saw the stock open and move above 330 only to fail and finish very near to the day's low.

Anyway, I didn't cut and had to sit through 3 days of retracement before a much better buy signal yesterday. I was already long so didn't add but at least the stock made its way back to 325. The nice thing about this entry is that you have more of a sense of selling momentum having faded and there's an entry at 317 with a stop at 307. Here's the daily.

3.42 We're just limping to the finish line as the market ebbs away, still up 13 though.

I'm worried about PDN, the 60 minute chart has developed a lame sort of c wave in 5 that isn't going anywhere. So, I've sold half at 325.

FMG has also sold off since the early 652 high but the intraday chart looks ok for the moment. Still within a range but higher lows and no overlap yet from the mini breakout.

4.13 A nice finish though after the slow sell off, up 24 at 4684, and no need to stop out of anything else. Adios.

This time you've gone too far. Thu May 26

An oversold bounce has the Asx 200 back up 1.1% as the commodities rebound continued overnight. There's much talk about a copper shortage while coal and iron ore do better than expected.

My main computer had a video card problem this morning so it has been a scramble to fire up the old PC and get cracking. My long positions have bounced well with the market although I've got chopped in IPL as it bounces back through yesterday's high and I'm getting long again. I usually have a rule to wait for an a-b-c correction before anticipating a bounce, especially when the stock is not in an uptrend. For some reason, I totally forgot about that when I bought IPL the other day. Anyway, it's a better entry, although I haven't bought much as I want to see how the stock performs through the day.

AWE is a new long. The company has started drilling in its potentially huge onshore shale gas find in Western Australia. The chance is there for positive news flow. I'm buying on the break of yesterday's high. That bar could be a higher low and a conservative target might be 146 but good drilling news allows for plenty of upside since the stock has no premium for the story. Long at 137 with stop at 132.

 

11.50 On a more strategic note, I've been thinking about why April and May have been a wash out for me with reasonably good risk management being the only reason I'm breakeven for the period.

First of all, I'm biased towards a trading range with my strategy since that's what I anticipate in the bigger picture. The recent moves have been quite powerful although, ironically, they have been within a range. Secondly, I've been pre-empting without having at least some short term momentum to support the trade. Thirdly, when you get it right with these trades but there is no clear trend change, then you need to be very quick to take your profits. Sometimes I have but sometimes I haven't. Fourthly, I've only played it from one side. Therefore, in April, once I decided that the rally was overdone, I only looked for shorts rather than also taking continuation trades on the long side. In May, I've done the opposite.

Where does that leave me today? Well, I'm long and have my first positive indicator which is a break of yesterday's high after a strong downdraft. My opinion is that this should be the start of a reasonable recovery but that it will not go above the April highs and may fall a fair way short, say, 4800.

However, I have no proof of that and my strategy should be to cut my longs rapidly on a loss of momentum. Looking at the last swing up from last week as if this was a stock chart, I would have been cutting some of the long on the weak inside day last Friday and cutting the rest this Monday as Friday's low was breached. Considering that it was most definitely a downtrend, despite my thought that the 5th wave low would hold, I could have been putting on a short position on Monday on the basis that the bounce had (tentatively) made a lower high and the trend was intact. Today would be cut and reverse.

The basic principle of waiting for some sort of evidence that your scenario might be correct would also have kept me out of trouble on the short side in April since the first serious down day indicated the top and the most negative days were a few doji bars.

This is not earth shattering stuff but it comes out of examining my trades. Over the past 15 months I've found that intelligent anticipation can make the difference between breaking even and making a decent return. But after running through my trades, I found that it's still not worthwhile buying on a down day near support. It's better to pay a little more on an up day as it seems to provides a better quality stop and a higher probability entry.

For example, using the XJO chart above, I might have decided to buy on Monday's down day on the basis that the swing low would provide support. It's better to buy today, at much the same levels, but without the whole aspect of trying to catch a falling knife. It also makes trading easier since the market tells me what to do, rather than me having to pick a likely point.

12.25 Back to the market, LNC has burst through 300 to be up 20 at 306. Maybe there's a coal tenement sale brewing. Here's the chart. It's my biggest position so I hope there's some substance to the story.

1.33 Today is May expiration for exchange traded stock options. It tends to have a gravitational effect where the larger stocks will get sucked towards a round number and the overall effect is usually to limit intraday volatility. You can also get cheap options as the weight of numbers of investors rolling short positions means that the traders throw up their hands by the end of the day and wind their bid prices right back.

Which brings me to Fortescue. I think the stock could go either way at the moment, it's forming a sort of a pennant after it recovered but made a lower high in April. Despite the hint of a head and shoulders pattern, there's a definite possibility that the stock has had its correction and has also had wave 1 and 2 of the next move to a new high. In that case, the stock could burst through 700 to new highs. FMG June 650 calls offer a reasonable way to play this move. They're down 1.5 to 12.5 on the day, despite a 6 cent rise in the stock as option premium is offered lower. Expiry is in 4 weeks time on June 23rd so it's a fairly short cycle but since the stock has already consolidated for a couple of weeks (relative outperformance) there should be plenty of time.

2.41 Bought half of the FMG June 650 calls at 13.5 as the stock pushed up to 633. Looking at the 60 minute chart, if the stock pushes through 636, 637 then there'll be a short term break and I'll buy the rest. They'd probably cost a couple of cents more but the picture would be clearer.

3.03 Something to do with cutting back to my new PC after repairs but the news stories on LNC hadn't been appearing. Anyway, the sale process for the Teresa property is close to completion with one bid already received. $500 million plus is expected.

4.12 It was quite a squeeze today and the Asx 200 closed on its highs, up 75 at 4660. It's a pivot reversal, according to the Dow Jones news wire. Apropos the commentary earlier, I'm long and hoping for more.

FMG closed at 633 so I haven't bought the last portion of the calls. LNC, LYC, IPL and PDN all finished strongly. AWE hung around the early levels to close up 2.5 at 137.5.