Trying to hold the line. Mon Jun 27

More Euro concerns – Italy was in the picture also – were enough to limit the recovery rallies for the Europeans and to reverse the rally from the previous session lows in the US. The S&P 500 index held above the 200 day moving average but that looks like a temporary situation to me. The Greek parliament will vote on the austerity package on Tuesday night (our time) so that could be a circuit breaker but it's no sure thing to pass.

In the meantime, the Asx 200 is trying to hold the line above last week's 4452 low but it's a close run thing with the intraday low at 4456.5.

I'm working with the premise that the trend channel will stay intact which means I was short and I'm staying that way for a while longer. It's not one way traffic though. I got out of my TLS short soon after the open because the second round of analyst opinion on the NBN deal was less pessimistic. The sale price for the July 300 puts was 13.5.

CPU is continuing to fall and since it's not one of my normal stocks, I thought I'd have another go at developing a longer term strategy. I've sold July 875 puts at 23 which means I'm long the 900 to 875 put spread at 7. My plan is to sell more July 875, or maybe 850, puts once I feel as if the selling is easing. I'd be looking at a net credit for the ratio spread so the ultimate outcome is either getting put the stock at 875 less a discount of 25 for the 900 to 875 put spread and any extra credit from the second sale or the stock rallying above 900 which means that I pick up the credit on the ratio only or expiring somewhere in between with 875 the best outcome.

I've bought July 5050 puts in CBA also. The stock has slipped below Friday's low and I suspect that the retracement might be over. Ideally, I'd like to turn this into a ratio spread after a resumption of the downtrend. If the stock doesn't weaken then I'll have to scrabble out of the trade; maybe hedge with stock etc.

Otherwise, FMG and LYC are heading lower along with RSG.

1.11 The market is on its lows but just above the 4452 level. My positions are performing reasonably well but there is one that got away. I identified LNC as a short and got permission to trade but somehow missed the cue. It actually opened a touch higher before tipping over so it would have been a good day trade. Here's the chart.

2.10 I'm short CGF at 480 as they're slipping away after a 2 week retracement rally.

2.25 Asian markets are outperforming the overnight lead and that might have been enough to help the Asx 200 rally for an hour or two. The rot has set in again though and the market is testing the intraday lows, down 48 at 4460.

3.14 It looks like support will hold for the day; the action is contained within the tight intraday range established earlier and the opening calls in Europe are for a mildly lower open.

4.16 That's pretty much what happened, the index shed 46 to 4462. CPU kept falling and I'm in no hurry to sell the extra puts. I did hedge some of the CBA Jul 5050 puts by selling half the number of July 4900 puts at 49. That's 27 for the 150 spread. LYC drifted off and closed at 195.5, not before it traded below 195 which is a minor support. I'm hopeful that there'll be more weakness tomorrow as I have a core short position there.

Back from the brink. Fri Jun 24

The release of oil from US strategic reserves and a misunderstood communiqué from the EU were enough to jolt the US Dow Jones and the S&P 500 indices (almost) back to square after a near death experience early on in the night. Overnight futures are reflecting that recovery with further small rises. Meanwhile, European bourses were heavily lower.

I'm staying with the theme that the downtrend is intact and the US recovery is probably as much to do with the fact the QE2 is continuing to provide liquidity to the US market. Nevertheless, the Aussie market is up 8 after 43 minutes and the potential is there for a higher low. It's partly why I'm using more options than usual at the moment. After such a long downtrend, we're vulnerable to sudden short squeezes.

Telstra was sold off from the opening, hitting a low of 290. It was a big move for such a stodgy stock and some buying has pushed it back to 292. I'm offering half of my puts at 12 which would cover the cost since I bought them for 6. The opening trade was 11 in these July 300 puts but the stock bounce has left me out of the market. I'm hoping that the stock will slide away once the bargain hunters have got set.

10.55 The gold price followed oil lower last night and it now looks as if a lower high is in place after a choppy 5 wave retracement from the May 5th low.

I've shorted gold stock Resolute at 106.5. It bounced from a May 17 low to reach 117 but that now looks like a wave 4 retracement which just failed to break the significant wave 1 low at 119. If it can duck through Monday's low at 103.5 then it could be a fast move to around 95.

11.18 LYC is starting to tip after rallying for most of the week. I've added to my short at 204 this morning but this is what I've been doing all week, selling the early strength to buy back later while keeping a core position. This time I might be able to hold the extra stock overnight because a sale at 200 might be enough to trigger the resumption of the downtrend.

I'm generally wary though, I've been playing this game of selling early just about every day this week but the market is setting up for a potential rally this afternoon. There's been a dip into the negative but it's only a few points below yesterday's low so there's not huge conviction.

11.36 Sold out half of the TLS puts at 11. The traders have backed off after buying a lot of these at 10 soon after the open. I sold to what looked like a non-trader bid.

12.10 The HSI is up over 1% but that market is a beneficiary of a lower oil price and it hasn't carried through to a rally in Australia.

2.48 The index did manage to turn around and is 15 points higher. Not too much damage to my positions though. TLS is down at 288; I've got the second half of my puts on the offer at 16 so will need a few cents more to get set. CPU has actually slipped lower to 888 which is still up 4 on the day but below this morning's levels and FMG is also higher but no worse than the morning peak.

Actually, the rally is largely confined to the top 20; there is marked outperformance there.

3.25 The market is just coming off an intraday high but I'm sceptical for now because the intraday action is choppy with overlapping waves. Here's the XJO over 14 days (10 trading days) on a 60 minute chart.

4.12 All over for the week with a late sell down trimming the gains to 8 points. It's been a battling week for me but at least I've seen a return to profitability after a couple of tough weeks. LYC wouldn't give ground and I closed out the day's short for a fractional gain. The rest didn't do much.

Chinese markets are particularly strong today and European markets are set to bounce strongly at the open after closing last night before the US saw its late rally. I'm still short and concerned about getting caught in a squeeze. Here's the daily XJO chart.

Overcrowded? Thu Jun 23

Ben Bernanke's testimony was enough to put a shiver through the US market and the indices dropped late after looking on track to post another winning day. The local market has been quite resilient and also very whippy as it's option expiry day. After 75 minutes, the index is in the red to the tune of 11 points, having opened weaker, rallied and softened again. It's a mixed picture for me with shorts in FMG and LYC stubbornly holding on to a few cents of early gains but OSH well down and CPU looking promising as it failed to sustain an early bounce.

TLS has announced the NBN deal and I'm not on top of the details yet. However, the stock has reversed course after an early rise and is down at 299. I was regretting having bought June rather than July puts as I felt it wise to take what premium was left yesterday on the June 301 puts. Expiry day has bought some reasonably priced July puts and with the stock very close to a 298 sale, which would confirm a change in short term trend, I've bought July 300 puts at 6.

What I like about this trade is that the long position, driven by a great yield, is a very overcrowded trade so there could be a rush to the exits.

On a 60 minute scale, the index is holding above the breakout level from Tuesday. The bullish case is that the institutions will be looking to support the market as we approach the end of the financial year. The bearish case is that a lot of the fund managers that you see on the financial tv stations are in no hurry to buy. I'm tending to the bearish camp simply because we remain in a downtrend and I hope the index slides right through that support level this afternoon.

11.58 I didn't think it would happen before lunch but with the HSI opening weaker, the XJO took fright and sold down to 4504. It's at 4512 now, down 21, but the die is cast and I'm pretty comfortable with the short positions. Just as well, I will be out of the office until about 2.15 pm so I didn't want to be fretting too much.

I've almost closed out the OSH short, buying stock as the puts are intrinsic and will exercise automatically tonight. I've bought at 654, 652 and 647.

2.12 The last two hours has been a period of consolidation. I bought CPU July 900 puts at 30 before leaving as I'd like to hold that short position via options. I delayed selling the June 900 puts and was lucky enough to get them away at 16 as the stock fell as low as 881, back at 888 now. I include the CPU daily chart over a longer time frame than usual, you can see that there's a chance that this break could be the start of a longer selling wave because the consolidation was quite lengthy.

TLS is steady but did trade at 298 to confirm that sell signal while FMG has traded below yesterday's low to give a fresh entry. As with CPU, I've bought some July puts instead of letting the exercise of June puts leave me with a simple short stock position.

 

3.32 I've hedged up the last of the expiring June 625 puts in FMG with stock at 603 so just have the new July 625 puts at 32.5. The Asx 200 is back on the lows, down 29.

4.12 The index shed 32 points to finish at 4500.5. A reasonably good day for me with CPU and TLS finishing close to their lows. Short via July puts in CPU, FMG and TLS and still running a small short in LYC which edged up 2 to 204. I did pick up a few bucks shorting some extra LYC early on which I bought back later.

Here's the updated Telstra chart.

Winter solstice. Wed Jun 22

It's a good day for the Druids and the optimists with a further 1% plus lift in the market after half an hour following on from similar gains overnight. The Greek no confidence vote squeaked through with a yes after the US closed although the S&P futures are only a tick or two higher so it must have been built into their rally.

The balance of probability is a move back to the top of the trend channel rather than a trend change especially as the Greek parliament still has to vote on the nuts and bolts of the austerity bill which may turn out to be more of an issue than the no confidence vote. A push up to 4600 is only 37 points away and that would be enough for a new swing high and would change my approach back to buying dips. In the meantime, I'm shorting a couple of things on an intraday basis while holding on to minor shorts.

11.44 While the Japanese market has been strong on the Euro-Yen cross moving in favour of Japanese exporters, the HSI has opened with a relatively moderate gain of 0.7% and the Shanghai index is flat. It's helped to accelerate a pullback from the early high so that the Asx 200 has trimmed gains to 37 points.

12.45 So far, the strategy of selling the open to buy back has worked. I've had some joy in BHP, FMG and OSH to pay for much of the loss on the overnight short positions. There isn't too much downside for those positions now so I'm happy to hold overnight while the market is in the trend channel.

The elephant in the room is LYC. I suspected I should cut the last of my short on the close of trade yesterday at 195, which was breakeven for that portion, especially since I'd done pretty well with some intraday trading in that stock. I've let it go a couple of cents past my stop but unlike the rest of the market, it hasn't eased back significantly from the open. I'm tempted to use 211 as my stop, since it's now the most rational level having missed the chance last night.

2.30 Stalemate for the last hour or two as Chinese markets soften and the Aussie market holds the line. I'm out of my last TLS June 301 puts at 1.5, with expiry tomorrow I think I've had my chance with this one.

3.41 The early indicators are for a flat opening in Europe and along with a muted day on Chinese markets, the index has slipped further to 4535, a rise of 26.

I've had an expiry day punt in Computershare. I paid 6, a touch over the odds for the CPU June 900 puts. The stock has been downgraded to sell today (the only sell recommendation, admittedly) and it looks like one of those a-b-c corrections where the c wave is weak. They often fall sharply and I'm hoping that happens tomorrow.

4.16 The index closed at 4533, up 24. CPU closed at 900, the day's low...fingers crossed.

Normal programming? Tue Jun 21

It looks very much like the last couple of days with a slightly surprising bullish lead from Wall Street providing early support to the market only for that to fade. The action is a touch stronger, 50 minutes in and the market is up 39 points from an early 55 point high. In previous days, the bulk of the gains were gone by this time.

My book is exclusively short and I'm watching carefully. FMG is up 9 at 611, LYC up 5.5 at 190.5, OSH unchanged at 656 and ditto for TLS at 303.

The DJIA looks unconvincing to me; it reminds me of the action here about a week ago where the structure for a retracement rally was in place but there was no acceleration away from the turning point. With the Greek problems having eased temporarily, I'm not sure that there's too much more of a gain from that front.

11.25 Foster's Group has rejected a takeover approach from SABMiller at 450 on the grounds that the bid undervalues the company. The market agrees and has pushed the stock up 57 to 510. When the stock resumed trading at 11am it helped push the market back above 4500. Yesterday's high was at 4520.6 and the market might have a tilt at that level. I've had a browse through my watchlist but can't find anything to buy.

11.34 RBA Governor Stevens just spoke and reiterated the need for rate rises later on but with no immediate urgency. Nothing new there but no solace for the market either and enough to stall the rally.

12.33 There was a marginal new high on an intraday basis at around 11.30, since then the index has faltered and there's a minor sell signal now on the XJO 10 minute chart.

1.14 TLS is starting to look weak. I should probably have bought July puts but the June 301s might just bring some joy.

3.09 I spent the morning shorting a few things intraday to buy back on the seemingly inevitable sell off. Fortunately, I bought back the day trades because the market has finally shown some gumption and is back above 4500.

I sold another few OSH June 675 puts at 22 but still have have half the original balance. The stock has recovered from a post lunch low of 652 to be up 4 at 660.

3.22 About two weeks ago, I was listening to an executive from the new National Broadband Network on the radio. This is the superfast connection which Australia apparently can't live without and which will be the lifeblood rejuvenating TLS. The presenter asked about the rollout in Tasmania and the spokesman rabbitted on. Eventually the presenter asked how many customers they had signed up. It was 300 (or something very close). The presenter was polite but clearly incredulous; this was the $46 billion project which was more important than public transport bottlenecks in most of the major Australian cities. This was the project that warranted huge amounts of public money when there are plenty of private alternatives available to the Australian consumer...the pet project of the once and future (?) king, Kevin Rudd. It was pretty funny.

3.42 The point I'm making is not to kick Kevin Rudd (specifically..anyway, I'm the bigger fool, I voted for the man) but to point out that the NBN is unlikely to be the saviour for TLS.

Meanwhile the index just peaked at 4510, I think, which is 10 points shy of yesterday's high. It's sliding back now.

4.14 The market closed with a gain of 56 points. The 60 minute chart looks quite promising so maybe we'll have a further day of consolidation tomorrow. Still short though but mainly via options.