Interest rate sensitive

A 25 basis point rate cut is baked in for tomorrow but there are a couple of interest rate sensitive stocks which are charting promisingly despite the consensus.

One of them is retailer DJS. The stock has been falling for ever but had a decent pop in April and has spent a week or so consolidating without a meaningful pullback. Long at 250 with a stop at 242.

QAN fell out of favour in early April but momentum has stopped and price could be reversing after a minor new low on Friday. Long at 163.5 with a stop at 159.

I sold out of ALL and UGL for square as there was no follow through this morning. I took profits in PRU too early as I was concerned about a double top; it's up 9. But I've gone long another gold stock, Resolute, at 166.5. It's a similar chart to QAN but coming off a higher low after a choppy pullback of the first bounce. My stop is at 159, below Thursday's low.

AGO is at risk of misreading investor attitudes to the iron ore cycle. The management may well be correct about ongoing demand but the market is cautious about the sector and talk of building a railway is not helping. Short at 289 with a trailing stop; I've already covered a couple at 283.

WPL has reminded me why I shouldn't be punting naked long premium. The stock has been strong today and negated the possibility of downside acceleration. I could see a breakout on the cards and sold out the May 3374 puts at 32 (v 76 average) and bought some stock at 3470 for a quick day trade. I'm almost out at about 3495 average which has marginally softened the blow. The short term picture looks pretty good now but the stock price is too high dollar for me to want to hold an overnight position.

The market is making up for weakness on Thursday and Friday although a tilt at 4400 has failed so far and the action is not super strong. Up 29 at 4391 at 2.24 pm.

Of my other short positions, ASL and NWH have pushed higher but I'd already covered half of these and I'm sitting on the balance while TOL is down 2% and OST is flat.

4.39 That's the end of the month. I thought the market might sneak up to 4400 on renewed strength this afternoon but it fell just short, finishing up 35 at 4397. My new longs were mixed but on average were about breakeven. AGO did well, closing near the low at 280 and I bought back a third of the TOL short at 583.

Towards the close of trading, I bought MSB at 747. It's my third attempt at buying this – the other two were minor gains – and I'm hoping that a pennant shaped correction is complete. Long on the reversal with a trailing stop and the potential of a move to 810 or higher. The closing price was somewhat misleading as the stock jumped on light volume.

On their own

The Americans are on their own with another decent rise last night on the back of more good results from a strong reporting season and soothing words from Uncle Ben. The Aussie market faces a different set of circumstances and it was sell on open again this morning. At 1.08 pm, the Asx 200 is down 5 points at 4370 and I've been tinkering with existing positions and putting on a few new ones.

Of the existing ones, I've shorted and mostly covered additional stock in ASL, BLY and NWH. I sold out half of the PRU for a small gain at 254 but I'm late into the trade and it has stalled at resistance.

I've added a couple of longs. First, ALL at 315 with a stop at 309. A flat correction which may just pop up to a new high at 330ish.

Second, UGL at 1307 with a trailing stop. It's more of a consolidating sort of chart but a strong pattern as it breaks out of a short term triangle.

 

I'm hoping for a bearish reversal with OST. I'm short this at 132 after it made a marginal new high yesterday and failed to follow through. Stop is at 137.

TOL kept running after I stopped out at 580 on Tuesday. I've sold this at 595 as it's another marginal new high and the action seemed more like a short squeeze.

3.29 Out of PRU at 252 for a minor gain and covered a small short in BLY at 409 (v 418). The index is now down 8 and it's the resources that are weak again. WPL hasn't cracked but it's beginning to look vulnerable to a downdraft. Fingers crossed.

4.17 A late flurry of selling left the index on the day's low, down 13 at 4362. OST and TOL didn't do much but I held them, the same is true for the new longs in ALL and UGL. It has been a fun week now that I've focussed on what I enjoy about trading and that's despite some stodgy action in the market.

Coming to a head

I've been bearish and wrong for a week or two but the latest leg up has formed up into a textbook 5 wave pattern and there's probably not much left in the short term. Our market seems to think so too because we've eased back after an opening which didn't quite match the overnight moves. Up 20 at 12.43 pm.

I bought back the AWE short at 181 and stopped out of the last of the SEK for 699. NWH has bounced and I've re-shorted some stock at 408.

I've also shorted some ASL at 410, it's a similar chart and sector to NWH.

I'm gambling that PRU has more upside. Long on a resumption of strength at 248 with a stop at 236.

Of my existing positions, FMG has fallen further to 576 and I've bought back a couple more at that level, WPL has drifted to be up 3, OSH is hedged and will contra out tonight and SUN is up a few cents too so the May calls are holding their value.

2.33 Out of FMG now, buying the balance at 565. I've been conservative when taking profits in a couple of these because I need to rebuild the P/L account after a poor start to the month and I still have puts in the index and in WPL which provide quite a lot of downside potential.

4.02 Approaching the match and the market has flirted with a fall into the red but steadied to be up 11. I bought back the extra NWH short at 404 and 402 and covered a couple of the ASL at 404 too but remain short. SUN has reversed after some early strength so the 8 cent May 850 calls are down to 4 but WPL has also reversed lower which helps my puts.

4.13 The index rose 15 points today, closing at 4375.

25 or 50

For once, the PPI was an accurate pointer to the CPI which came in well below expectations to leave the annualised number at 1.6% compared to expectations of 2.2%. The trimmed mean, preferred by the RBA, is at 2.2% which is within the 2 to 3% target band. It has cleared the way for a 25 basis point cut in official interest rates next week but the rapid slowing in the economy would justify a 50 bp cut. Consensus is that the RBA is too conservative for this to happen but the speculation is helping the market to bubble along.

It may be short covering ahead of the public holiday tomorrow but the index had already shrugged off very weak overnight performances to sneak into the black before the figures were released and the market pushed on subsequently so that the recent highs at 4377 were almost reached. At 12.48 pm, the index is up 14 at 4366 with an intraday high of 4373.

My short positions are mixed with resource stocks AWE and FMG both lower (I shorted some FMG towards the close at 591 on another potential lower high) while SEK and TOL are firmly higher. I bought a little of each of those on the weak open which turns out to have been sensible.

The other main position is OSH. They published a quarterly and briefly popped up to a new high before falling back. I took that as a short term top and sold out of 200 of the April 725 calls at 15. I hedged the last 100 with short stock at a 741 average.

 

2.03 The market has eased back to square and it has the potential to weaken this afternoon because that's a second failure at the high. I added a short in mining services company NWH at 409. It's another potential lower high with a stop in the mid 420s. It's working so far, having slipped to 404.

4.12 The market didn't tip over, it steadied and finished up 8 at 4360. Out of the last of the TOL at 580, my average today was 575 – the same as my entry level – and I bought a third back at 565 so picked up a small gain overall. I covered more AWE at 181, FMG at 581 and some of the NWH back at 398.

WPL was weak today and I still have May puts – much reduced in value – but I'm hoping they may come again. It was a day for interest rate sensitive stocks at the expense of resources.

The market re-opens on Thursday which is also April expiry day for exchange traded options.

Nothing doing

It's a boring old day as we wait for the CPI tomorrow. We had the PPI which was much lower than anticipated but the correlation with the CPI is not so strong in the short term. The HSBC flash PMI number came out too and that showed a slowing economy but also a slowing rate of contraction. All mildly bullish for us but the index merely bounced back to the middle of the intraday range. At 2.08 pm, it's down 9 to 4358.

I nibbled at short positions, buying back some BLY at 402 and TOL at 565. I've traded a couple of things in the hope that they would start to get a wriggle on but neither are doing much so I'll probably exit. OSH suffered some profit taking early but is almost back to square.

AWE is one of the tentative trades. It may have completed a retracement towards the high. I'm short on a break of yesterday's low as news of cost overruns on one of their projects is providing a catalyst for some selling. Stop is at 200 but I'll see how it looks as we near the close before I fully commit to the trade.

3.42 Out of BLY, buying the rest of the short at 397. It still looks weak although it has traced out 5 waves on the 60 minute scale. There may be a shorting opportunity on a retracement.

I've added a short in SEK. It's another faltering correction which could be a lower high.

4.12 The action increased as the afternoon wore on and the Asx 200 drifted lower to close at 4352.

Bolt from the blue

Oil Search has found a whole lot more gas in PNG and the share price ran from the open. It's holding on to the bulk of the gains with a rise of 36 to 735. I had 600 of the April 725 calls which I'd written off with expiry less than a week away so the move has been a pleasant surprise. I sold out of 100 at 10, followed by 100 more at 15 and at 14.

The fact that the stock has held so well intraday implies that there is serious buying. I'm planning to hold the rest of the options but needed to bank some money after a horror week. Judging by today's move, there could be another 20 or 30 cents in this over the next couple of trading days and possibly more today too, as it's only 1.20 pm.

The index is doing well so far but is close to intraday support, I anticipate some Friday afternoon weakness following recent strength with a weak overnight lead.

I sold out of IAU at 79.5 (v 77) for a quick turn. I was looking for 85 and missed my chance at 83. It tipped over quickly so you had to anticipate a top. Here's a 60 minute chart.

ALL looks a bit toppy and has made a minor sell signal with trades at 311. I'm short a few at 313 and will wait till later to see if the weakness continues. It's a counter trend trade but it's at the point where there have been a sequence of minor new highs close together which is indicative of a turn.

3.40 The index is really doing well, just 3 points lower and resisting occasional attempts to knock it down, worse luck. ALL is holding and I've decided to can the trade, buying back for square. I've replaced it with a short in BLY. This one is having a full blown reversal day and has more chance of the sort of quick move I'm looking for. Short at 409 with a stop at 423.

The strength in OSH has continued and the stock is at 740.

4.14 A late burst of enthusiasm pushed the index into the black, up 4 at 4467. OSH closed at 739.

More food for thought

The market has shrugged off overnight weakness and pushed on towards the March high of 4377. At 12.24 pm, it's 17 points up at 4366. I'm short the index via puts and also short WPL in the same way. WPL is also up, 38 cents at 3493 as buyers respond to a reasonable quarterly report. At this point, April is easily my worst month of the financial year and in common with last June, the final and worst month of the previous financial year, I've started buying options.

I spent many years as an options trader and I know what I'm doing wrong; I'm punting them, not trading them or hedging etc. As with last June, it's motivated by trying to give the P/L a decent kick along but it's not what I'm doing for the rest of the year and is therefore pretty silly.

It got me thinking about how I do trade for the rest of the year and the way to improve my performance is to do that bigger and better. One of the issues with my bread and butter business is that I'll swing from trying to pick turning points to waiting for absolute confirmation or only trading continuations and so on. But rather than go through a ton of charts and my trading records as I'd usually do, I decided to think about how I like my trades to go and to work backwards from there.

I came up with the following. My ideal trading style is where my positions are in front quickly and the trades continue to move my way quickly; I'm out within a few days and focussing on other trades; I only have a few trades on at any one time; the trades have a good risk/reward ratio, tight stops and clear entries; I know exactly my trades and take them, including exits; the trade size is enough to warrant the attention; I regularly make a target amount each month.

A lot of this might seem pretty obvious but it's a good starting point and it automatically rules out a lot of trades. For example, I would only use options in XJO (the Asx 200 contract) because there is plenty of liquidity and narrow spreads, otherwise the time frame of the trade is too short to justify crossing the spread twice. I wouldn't pick a level to buy a pullback but would wait until there was some sign of renewed strength. I'd avoid slow movers and stocks in a range even if the signal was ok because the odds of a fast move are low. My preferred entry is early in a move so I'd avoid chasing stocks that broke out a day or two previously.

Essentially, the technical stuff is little changed, it's more about my trading strategy and thinking about what I enjoy most about the work. With that clear, the choice of which trades to take is much simpler.

In the meantime, I'm stuck with some underperforming option positions. I'm prepared to write them off because there's a reasonable chance that the market is topping out and I may retrieve some of the premium.

The only trade that is going well, in a small way, is a short position in TOL. In the light of my trading guidelines, I would be shorting this today sometime in mid afternoon. That's because I'm looking for a lower high and the stock has dropped below yesterday's low after petering out at 580 in recent days.

The 60 minute chart also came through with a sell signal this morning when the stock traded below 572.

Although the entry at, say, 572 is worse than the 575 level where I put on this trade, I'm giving myself a much better chance of having the position move quickly now that the retracement seems to be over. I also have a much clearer stop at 582.

(3.27 After taking a second look at this chart above, I realise that there was another sell signal on the 60 minute chart yesterday with the swing down to 572. Even though the daily hadn't yet broken, that might have been a reasonable entry too and would have been at much the same price as the actual trade the day before).

2.22 I think it's most likely that I'll have 5 or 6 trades on at any one time because there's usually one or two that pop up each day. One of those is a new long position in gold play, Intrepid Mines. I'm long IAU at 77 with a stop at 70. I was happy to get long if the stock traded through the Tuesday high of 74.5. I missed the boat at 75 and finally got set at 77. It's very oversold and there's scope for a quick bounce.

The 60 minute chart has a couple of buy signals; a minor one in the trading range at 75 and a more significant one when the stock broke Friday's high of 77.

On a weekly scale, it's the first break above the previous bar's high since this leg began in late February.

The index has had an interesting day. The intraday high is 4377.1 which compares to the high on April 2nd of 4377.5. It looked a certainty to break through but has eased back to 4364. I'd love to see a reversal now.

4.10 Up 14 to 4363, so we didn't get a late reversal. More tomorrow.

Premature

It hasn't panned out as hoped. The market has squeezed up today and the original short term target around 4340-4350 for the Asx 200 hasn't been so wide of the mark. Unfortunately, I gave up on that yesterday and bought some XJO puts at 56 which are down to 35 today. TOL is going ok – down 1 – and SUN had a good early run.

I'm not so fussed about the XJO puts, there's plenty of time until expiry and I think a top is forming so it's an error of timing rather than direction...for now. However, I am concerned about WPL. I don't like the fact that it made a new short term low by a measly 1 cent yesterday and has rebounded quite strongly today to be trading up 1.9% at 3462.

My position is held via puts and while that makes for a volatile P/L account, at least the loss is limited. However, I do want to make a profit here and my scenario is looking less plausible. To recap, I saw the stock as having broken support just below 3500. There had been a bounce back to the bottom of the band followed by renewed weakness, until today... Ideally, I'd like to see the sell off gather momentum but that's clearly not happening.

Getting back to the index, I'm looking for a lower high here or a worst case of a fleeting new high. A sustained drive up would not suit.

4.12 The market gapped higher first thing today and stayed in a very narrow range between 4338 and 4349. It finished at 4348 which is a rise of 1.4%. WPL closed at 3455 and TOL at 576.

Fading away

The market opened stronger but is fading away...down 6 now, at 3.04 pm. WPL is my main focus and that has dropped close to last week's low but is just holding above.

I've added a short in TOL and it's one where I'm looking for a lower high. Short at 575 with a stop about 10 cents higher. The recent swing down fell below the previous low and I've been looking for a retracement to sell into.

Reprising yesterday's Asx 200 30 minute chart, today's early rally failed to push beyond 4330. I'm assuming that was it for the retracement from last week's sell off and the next leg is in its early stages.

On a daily basis, another leg down could gather momentum and the March low of 4144 would be an obvious target.

4.08 I bought some XJO May 4250 puts at 56 on the basis that I think another leg down is imminent.

4.10 The market has finished down 14 points at 4289, close to the intraday low. WPL ended below 3400 at 3398.

Focussed

The broad market is performing well given that European and US indices had weak sessions on Friday. Banks are the mainstay with ANZ the standout thanks to its unilateral rate rise owing to increased funding costs.

It's a simple situation for me. I have some calls in OSH and SUN which are gently decaying and also some puts in WPL which are performing today as the Thursday/Friday rally looks to have been a retracement. The stock is down 1.9% at 3410 compared to a 0.5% fall in the Asx 200.

I'd like to see the price fail to hold Wednesday's low because that could clear the way for an acceleration of the fall.

3.52 The top 200 index continues to do reasonably well with the loss trimmed to 19 points. A 30 minute chart suggests that there might be a swing up tomorrow. There has been a 3 wave pullback from Thursday's intraday high which looks to be over and now it could be setting up for a push to around 4240.

For the moment, WPL is not participating.

4.12 Not much change, with the Asx 200 closing at 4303, off 21.

Chinese whispers

Daggy headline but the whisper number of 9% was totally wrong with Chinese GDP growth at 8.1%, below the consensus figure of 8.3%. The Asx 200 was already rebounding, with resource stocks the big gainers and the data has not been enough to stop that move in its tracks. At 12.46 pm, the index is holding on to two thirds of the earlier gains with a rise of 33 points to 4314.

I sold out of SBM at 211 for a fractional profit as the resource rally and a kick in the gold price was not enough to get the price moving. OSH and SUN continue to tick against me as the stocks are a touch higher but I need a large move to get some joy out of the call options.

I'm tired of PXS and after an early rally attempt fizzled, I'm selling out at 132.5. My entry level was 112 so it's not a bad trade.

On the short side, WPL has been up to 3483 which is the bottom of the old support range and is holding most of that rise at 3473. I'd expect it to struggle to get much further. I've bought a few more May 3374 puts at 67.

1.26 There's further to run in the rally, I think. WPL has squeezed up further to 3490 and the intraday chart of the Asx 200 shows the potential to push past the early highs. Chinese markets are unperturbed by the data so that's helping.

3.50 Bought more WPL May 3374 puts at 59 to average 63 for today's tranche. The stock has been as high as 3490 twice and is just below that at 3477.

4.12 It's all over for another week with the index finishing up 42 at 4323. I got out of SBM too early, it finished at 215. I'm just left with the option positions with WPL the main influence. That stock finished at 3476.

Repositioning

I was pleased not to have thrown in the towel on the longs yesterday but it hasn't done me much good. I stopped out of MSB at 750 as the support level came under threat again and I'm glad I did because the slide has taken the price down to 732.

This was a situation where I was looking for another run at the 800, 810 level but that didn't eventuate. I sold bits and pieces at good levels so there was a small gain overall but it's slightly disappointing nevertheless.

My other pharmaceutical long is in PXS. I've been expecting the stock to drift back into the mid 120s and stop me out but so far the price has held.

SBM has bounced back to be up 5 at 208. I think I'm trying too hard to pick a rally in gold stocks and if the action is subdued over the next couple of days, I'll probably cut this.

The other two longs are held via call options in OSH and SUN. Neither are doing much and since my options are out of the money, there's a daily cost in time decay. The OSH April 725 calls are down to 4 and have two weeks to go. The stock is at 699 so there's ample time for it to run through the strike but a range seems to be developing and momentum has stalled.

SUN failed to accelerate as I'd hoped and the stock is slowly retracing an upswing which went from 768 to 847. The April 750 calls are down to 1.5, virtually written off. I have some May 850 and 875 calls which could amount to something eventually. In retrospect, the stock has been in a range for some time which made buying call premium risky. I'm still looking for a higher low – relative to 768 – but if that happens, I'll probably just trade stock.

I'm reasonably happy with the short position in WPL. I expected the stock to rally harder today and I hope to add some more May puts if it pushes up towards resistance but doesn't go through.

The whole repositioning idea is that my base scenario has changed. I'm now looking to sell rallies and I'm ready to get out of any long positions. I don't want to leap into a bunch of short positions without a great entry because there's no confirmation that the rally is over, it just looks that way.

4.12 The market pushed up further in the match for a rise on the day of 34 points to 4280. Even if this is to be a turning point, we could easily see another few days of retracement. See late October, early November as an example.

Where's the rhyme?

Sell in April and ....? Or, April is the new May. A catchphrase works better. For the third year in a row, it looks as if the rally has petered out ahead of schedule. It's a stretch to call it a rally, maybe just a pause in the bear market. The Asx 200 is almost 1% lower at 2.08 pm but the usual intraday recovery seems to be finished already.

Anyway, my book is long but conservative and the damage is at the irritating end of the scale. SBM is down but the sector is up and it started to move yesterday. MSB and PXS are lower but stand a reasonable chance of outperforming if the sell off gathers pace. I'm out of a remnant position in the NAB April 2450 calls for 22 (v 32) but it was a good trade overall with profits in March calls and three quarters of this April trade sold at around 60. The other two positions are held in calls. OSH is actually up and maybe there's some positive news in the background. The final one is SUN and, as with OSH, the calls are marked down to the point where further losses would be minimal.

I have a new position and at last, a bearish one. It's in Woodside Petroleum and I've bought both April 3374 puts and May 3374 puts at 52 and 89 respectively. The weekly chart shows that the stock has had two rally attempts since last October which failed to regain 4000, which was a support level from mid 2009 to mid 2011. There has been an initial fall, followed by a 4 or 5 week congestion and the price is now moving lower.

The daily chart shows that congestion which tended to make lower highs but hold support at just under 3500. The stock broke the level yesterday but closed back near the support line. Today has seen a more conclusive move lower and I'm looking for the fall to accelerate. If there's serious weakness in markets then 3000 is not out of the question in the next few weeks.

4 pm Actually, BHP had quite a significant breakdown today, as it fell below and failed to regain the 3400 level. It's at 3361 now and I'm tempted to buy some puts but the stop is some way distant and the premium is fairly high so I'll let this one go.

4.14 The Asx 200 finished at the day's low of 4246, a drop of 46 points. The daily tells the story. The slow grind up, failure to break out of the range and an accelerating fall.