Bohemian rhapsody. Fri Apr 30

"Is this the real life? Is this just fantasy?" I'm trying to work out which of the alternate universes is the most plausible one. Sunny skies prevail in the US as their market recovered briskly on the back of domestic concerns but from an Australian perspective there's a lot of caution around and we seem to be reacting more to the Shanghai market recently as the Chinese apply the brakes more heavily than anticipated.
It's also difficult to blithely accept that the European troubles have been cleared up with last night's Greek rescue package. Personally, I'm tending to a bearish stance but genuinely trying to find any buying opportunities to counter my short positions.
To business: I'm out of the extra shorts in Bsl at 266 and 267 but still short the first lot. Also out of the Cgf trading short - got a few yesterday at 412 and the rest at 415. And the Mmx the other day were cut at 250. They haven't even had a dead cat bounce yet, they're down at 240.

I do have a new trade to feature today but, again, it's another short position, this time in property company, Stockland Group. I thought about shorting the new swing high earlier this week but was unconvinced. Now, I'm shorting a retracement from the rejection of that level. I've sold at 401 and 402 with a few more on the offer at 405. The stop is a couple of cents above 415.

4.01 pm Going into the closing match out the market has continued to drift although we should still post a gain. We're up 12 points now.

It's an interesting mental exercise to be in a trending market after having chopped around a lot lately. I'm finding I need to be slightly more aggressive in putting on positions because we're more likely to see only minor corrections in a good trend as opposed to the 61.8 to 80% range of pullbacks that have been common more recently.

Cautiously pessimistic. Thu Apr 29

The sell off is accelerating and plenty of stocks are moving to a position of increasing certainty. Here's a Westpac bank chart as an example.

After a minor new high in mid April, there was a leg down to the bottom of the range, a failure to make a new high and now some acceleration down. Although the current sell off hasn't breached the swing low at 2663 in mid March, it's very close. There's decent momentum in this leg down and it's unlikely that it won't test the lows after a small consolidation.

To generalise from this, there's a strong chance that a top is in place; the pace of the sell off implies more to come; significant support levels will probably be broken shortly. Previously, the market looked toppy but was chopping around and making marginal new highs. Long positions looked like sucker bets and yet there were very few short signals.

1.56 pm There are no fresh trades today but I can mention Bsl where I've added to an existing short. I'd bought back some yesterday at 267 and have reshorted at 274. This is a position I initiated at around 277, punting that a small consolidation would break to the downside with the stop being the top of that range. It did break down and I've added some more short stock as it moved back towards that breakout level. It's close enough to the original stop level of 286 to make it worthwhile.

That sinking feeling. Wed Apr 28

An early post today as I'll be out of the office later. The outperforming US market has finally been dragged into line with the rest of the world which is topping out helped by the sovereign debt debacle in Europe.
In hindsight, I was too cavalier in ignoring the danger signs in a couple of resource longs, especially given my misgivings about the market overall. I went long thinking that they would probably hold above previous highs so that there would be a clean trend still. When they overlapped, while not confirming a trend break, it was definitely a warning signal. Anyway, I've cut a couple of things like Minara this morning as they've failed to hold key support levels and they clearly have more downside than upside momentum. There's not a lot of opportunity to go short but I'll be looking to short rallies more and more now.
My overall profit has only been mildly hit because shorts in things like Aristocrat and Centennial coal are performing well. I still haven't cut Mmx though, which gapped so far - 10% soon after the open - that I actually bought a touch more with the aim of jobbing the stock. It was only a half portion but I'm still down more than I'd like to be on this one. Sometimes with these smaller resource stocks, everyone wants to dump them (or buy them) on the open and a simple stop is not that smart.
Challenger is the one that got away. I had it on my watchlist to short yesterday but I looked around and suddenly it had retraced early gains. I thought I'd wait for some strength into the close which never came. However, it's not very hard hit today and I'm short a few at 424 although I'm hoping for a little rally towards 430 so I can put the rest of the position on.

It's slightly marginal but the chart is panning out as I'd hoped with a grudging new high and a sharp rejection. I think there could be some continued weakness over the next couple of days so it's a quick momentum trade.

Interestingly, the past few times that the market has fallen heavily, I've tended to get buying opportunities because the stocks have generally held trends whereas today has suggested that a lot of stocks are moving into downtrends so my take is to look for rallies that I can sell or stocks that haven't fallen very far. It's quite possible that there won't be  lot of opportunities today but, unlike the difficult last few weeks where stocks have lost momentum and started to chop, there should be a clearer picture from now on. 

A change of pace with a longer term chart....the weekly for the Xjo shows that the rally has had 3 stabs at 5000 and finally made it but with decreasing momentum. The first leg of the bear market stopped at 5040 in March of 2008 while this rally has peaked (if it has done) at 5025. Elliott wave theory would allow the possibility that the next wave down could go to new lows. I kind of doubt it. Even if you take the long term bearish case, it looks more likely that the rally over the last year was wave a of an a-b-c retracement. So you might see a higher low for b and then a c wave which fails to reach 5000 to complete the pattern.

Anyway, this is conjecture which is of limited use. Only good as a long term road map.

3.25 The market has performed surprisingly well today, helped by the general less bearish tone in Asian markets (bar Japan). We're down 60 points and I could definitely have been more patient in cutting a couple of my longs. Still, I'm reasonably happy with things and have added some more short Cgf at 428 and shorted some Fairfax at a touch above 173. I cut the little trading long there yesterday as there was no strength in the rally.

The resources have taken the brunt of the punishment today but if the fall continues then attention should fall the way of industrials.

Accentuate the negative. Tue Apr 27

Yesterday was a public holiday so we've got two days of action to digest on overseas markets. On a net basis the Europeans were strongly up, the US mildly firmer and yesterday Asian markets were very strong. The Japanese indices have held most of those gains and the Hong Kong market is just opening but in Australia bearishness has set in and early gains have evaporated.
I'm mildly skewed to the upside and slightly disappointed but not shocked as the Xjo index is pretty weak technically. Inflation worries haven't helped either as a higher than expected PPI has raised inflation fears.
A minor highlight has been a small bounce in Mmx which enable me to sell out the extra stock from Friday at a touch under 273. Atlas Iron, another smaller iron ore player, has announced a capital raising so it's quite likely that this was the cause of the sharp drop in Mmx late last week as investors may have been sounded out about the raising and sold others in the sector to make room.

My featured trade is another long in Fortescue. It really has lagged the other iron ore stocks but it's increasingly likely that the company will be able to fund most, if not all, of its expansion plans through internal cash flow and there have been some solid upgrades lately - notwithstanding a wide variety of opinion on the stock. For my part, I've gone long via some very short dated April 500 calls which I bought at 10.5 and then 7. I'm trying to buy a few more at 4. These expire on Thursday so it's an all or nothing trade but fairly low cost.

From a chart perspective, I'm disappointed that there's some overlap between this pullback and the mid March swing highs but I'm still reasonably confident that the rally has something left in it as there's a broad pattern of higher lows and higher highs.

Maybe I'm flogging a dead horse with my continued bullishness in Fortescue. It didn't get a lot of love today and weakened to 489 so that my calls are only worth a couple of cents now.

Stress test. Fri Apr 23

The market has rallied from some early weakness so that the Xjo is down 16 points, approaching midday, after a 33 point fall early. Resource stocks have been volatile and I've watched Mmx drop to 265 early although it's firming mildly now. I hadn't bought my full allocation yesterday so finished off with another tranche at 268. It's flirting with my stop levels so it was quite hard to buy more. A similar thing has happened in Minara, where I've bought a few more at 88.5 having paid 93.5 for some a couple of days ago.
Still, I'm encouraged by Cey. I've weathered the squeeze up to a minor new high and even shorted a handful more yesterday at 471 which I bought back this morning at 455. They're down to 448, a tick above where I shorted the first lot.
If I look at my group of positions right now, I'm not completely comfortable because I'm long high beta stocks like Fmg, Mmx and Mre. If the market is going to trend lower over the next few weeks - having made a sell signal yesterday - then these should underperform. I know I'm long them with reasonable stops but I do want to make a profit rather than a series of manageable losses!
One stock that stands a chance of outperforming is Fairfax. I've actually been short this for a few weeks but the losses have been grudging and I've cut and reversed with a long at 175. The recent swing low is 172 and I'll place my stop just below.