RBA watch

2.06 and the market is up 11 in quiet trading ahead of a rates decision at 2.30 pm with about three quarters of economists surveyed expecting another 25 basis points cut. AGO and PNA have retraced around 1% of yesterday's gains while IPL is inching higher.

I actually went long OST at 72.5 yesterday morning despite trying to limit my position numbers. I did at least buy a reasonable amount, 100k shares with a stop at 67 for a risk of $5.5k. It has been a very good trade despite a slightly premature entry. The close overnight was 73 and the buy trigger was an intraday sale at 73.5 yesterday. My idea is that the rallies have been overlapping previous swings on the way down and the stock is seeing slightly higher lows. I was tempted to buy more early at 73.5 as yesterday's turnaround found early support but I hesitated and missed it. There was a peak at 80 and the last is 77. I think there's a good chance of a quick move to about 90.

The stock has been sold down on the premise that the steel business is so bad the company will breach debt covenants and be forced to raise capital at a big discount. This happened in Bluescope Steel but the difference here is that Onesteel has an iron ore division which may provide enough of a hedge to forestall that possibility. There is renewed optimism about iron ore prices and the company has expanded that division to take advantage of valuable excess port capacity so the discounted share issue is not a certainty. It creates a binary situation where the shorts are either going to buy back at lower levels or the stock is massively undervalued as it trades on a FY12 P/E of 6 and a FY13 P/E of 3 according to an average of analyst expectations from 7 large brokers.

The reporting date is February 21st and any announcement is expected at this time so there is two weeks for nerves to set in and a squeeze to play out.

2.31 No rate cut but the commentary is doveish.

4.06 The market fell over after the failure of a rate cut to eventuate although it wasn't crushed. There's a lower high in place just above 4300 but I'm assuming it's a correction which may, nevertheless, get into the low 4200s.

AGO made a minor high yesterday and retraced today so there's a chance that was it. I'm still long and leaning towards this being an incomplete rally.

The match out has come through, the Asx 200 fell 22 points.