Cracking of the facade

I was watching CNBC on Friday night before the US open and various recalcitrant Republicans were being interviewed, members of the Tea Party faction. They were being questioned very aggressively by the polite standards of US television and seemed pretty shocked. This morning, a deal is done and I've read one opinion that the Tea Party leaders realised that the political flak was blowing up in their own faces and have softened their line. I think that their arguments for austerity have a place in the US system but their political approach has been reckless and cavalier.

With a deal agreed but not yet voted on, US futures have soared and after a fairly cautious opening rise of 40 points, the local market has kicked again post Obama's speech to confirm the deal. The Aussie market is now up 2%, at 11.20 am, as last Friday's action did turn out to be irrelevant as I assumed. I've sold out this and that and bought something too. Out of half of the AGO balance at 423, some BLD at 434, QAN at 186.5 (too early but my book is pretty long). I bought more FMG Aug 650 and 675 calls on Friday and have sold out half of the extra 650s at 21 (v 12.5).

My new long position is in PBG and I've been getting very interested in this lately. I'm trying to stick to clearly strong stocks and this is not one of those but although it's in the troubled Australian retail sector, it has some interesting elements. First of all, the chart shows a minor new low, quickly rejected and the possibility of a higher low. I'm long at 69 having just missed at 67 with a stop at 64. The other factors; the stock is cheap and a good dividend payer, it's mainly in the prosaic underwear section of retail so more necessity than discretionary spending, it's a beneficiary of a strong AUD and the cotton price which is a major input cost has come right off.

My main concern today is the Asx 200 chart. It's a very nice reversal but there is an incomplete 5 wave look about this swing. Ie., is this a 4th wave retracement and there'll be a last minute hitch before another low tomorrow? I suspect it's irrelevant since the deal that has been announced involves a committee working on cuts to be unveiled in November which should be vague enough to please everyone but I'll be happier if the index can break last Monday's low of 4529 which would indicate further lows are unlikely in the short term.

1.13 The Asx 200 is holding on to the gains, so there might be another minor push later. PBG was sold down to 67 and I bought the balance to take the average to a tick above 68. It has recovered to be 68.5.

3.24 The big question today is whether to hold on to my longs overnight. It seems obvious with the strong possibility of the US rallying and although that's built into today's action, there's usually some follow through if the move is confirmed. My only misgiving is the outside chance of this swing needing another leg down.

I did sell out the rest of the AGO at 424 as my assistant generally trades this stock and is also long.

4.18 Opening quotes for Europe are good but not spectacular so while US futures have held their gains, the Aussie market just faded about 15 points to close up 73 at 4498. For once, the Europeans were more concerned about weak Chinese PMI numbers than us and fretting about the Shanghai market which is strange because it's the least correlated market around.

Anyway, after yet again failing to pick the bottom in the steel stocks, I sold out a few BSL at 116.5 and OST at 180 along with some ALL at 248. It was a good day for the bottom line and I'm hoping for some follow through.