Stories

We're shaped by the stories we tell about the world and ourselves, they provide a shorthand that allows us to react to events as they unfold and it's only in hindsight that we reassess how accurate or useful they were. Last week I was trying to think of an animal symbol that might help me to be more responsive in my trading and I thought of a few but I found more value in the exercise I did on Thursday, which was to think of bullish scenarios. It has made me realise how much I'm driven by the story I've created for the market. Once, I had imagined those potentials, it was so much easier to buy when faced with a buy signal. That said, I'm now concerned that I've become attached to this narrative and forgotten about the overwhelming debt problems and political impasse. Still, at least if I have a couple of scenarios to consider, I can more easily switch when a turn is apparent rather than get that stuck feeling and watch helplessly.

Today is a day for that second scenario with US debt talks having broken down and US futures quite weak as a result. It seems that I'm not the only one who has switched to the bullish tack because although the Asx 200 is down 38 points, there seems to be a fair bit of resilience.

FMG is holding quite well with talk that the exit of long term holders will lead to an increase in index weighting come September, while LYC is up a few cents. NCM has rallied with a recovery in the gold price to $1600 so I'm glad I sold the July 4050 puts but still have the July 4000 puts which are down from 40 to 25. I've played around with my existing position and have bought AWE at 138 as the stock is sold off on a downgrade of some NZ oil reserves. The stock is running on shale oil and gas possibilities in West Australia so the NZ news is not a game changer. It's just a punt though, no chart signal or anything. There should be good support at 130 so my stop would be a tad below that.

12.48 Watching the financial stations this morning, everyone is appalled although not necessarily surprised at the US brinksmanship on the raising of the debt ceiling. When you're the richest country in the world you can afford to ignore the rest of the world but when you owe everyone big time, it may not be the smartest thing. It won't be an issue this time, once everything is resolved, but people have long memories and if there's any sense that the Euro can become the reserve currency further down the road or perhaps, a basket of Swiss franc, a reborn Deutsche mark, Chinese Yuan, Aussie dollar etc etc, the borrowing costs for the US are going to be a fair bit higher for years to come regardless of the current crisis.

The mood here is souring and this leg up has tipped back to support on a 60 minute view, with the loss now 50 points. I'm still confident that the turning point has been reached and expect the daily lows at around 4450 to hold – another 100 points below current levels. The Australian reporting season starts this week and with few profit warnings ahead of the results, outside the retail sector, the commentary will be downbeat (in this country of understatement) but the results should be solid.

My only long position that's immediately concerning is LNC which has reversed again, to 285. It's below Friday's low and just above the last swing low.

3.07 US overnight futures off by 1%, major Asian markets lower by about 0.8% (mainland China trading down 2% but on domestic issues), European opening indicators showing a potential for somewhere between 0.5 to 0.8% falls....so the Aussie market tumbling by 1.5% seems overdone. The intraday might need to push a few points lower to complete but I'm assuming there'll be a last half hour rally and have bought a couple of stocks on the back foot. AWE is the only one that hasn't really worked but I jumped at the bait rather than waiting and it has kept sliding to be on the day's low at 133.

Also, the US deadline is August 2nd so presumably we're going to have to wait until moments before the relevant hour for the smiling politicians to present their solution. That's another 6 or 7 trading days for us.

4.12 The market did make a low at around 10 past 3 but there was no rally to speak of and the match out saw a late drop to almost reach that earlier bottom.

My take is that today's trading is an overreaction but the Asx 200 chart could easily do what it did a couple of weeks ago and have a second big drop. The reason I'm not getting out of my long positions is that the rejection of the minor new low last week was significant and should turn out to be a turning point. It doesn't mean we can't get close to it again, even if it holds...there's the rub.