Passion reborn

About 6 weeks ago, I spent some time considering what I really like about trading and a couple of things surprised me. For example, I realised that I love trading actively and that hasn't changed despite my big plans to move to what I thought of as a more mature and considered trading style which would give me time for other things. Quite frankly, with my kids both into their 20s, I have plenty of time outside trading hours and I can't think of anything else I'd rather be doing (for work). In fact, it occurred to me that I had cause and effect backwards; I thought I traded actively because of years as a market maker but I wonder if I simply gravitated towards market making and did well at it because I enjoy the action.

Since I've unashamedly returned to an active style, I've done pretty well and also found – in fact, remembered - that I can keep to a longer term plan despite the everyday noise.

The other surprise was that rather than a focussed book of two or three trades, I'm quite happy to be in, say, 15 positions even if half of them are just an outlet for tinkering and the rest are the serious trades.

The overriding insight I've gained is that I get pleasure out of trading and I'm once more excited to get into work and see what the day brings.

I still have to work on the balance between sticking to a plan and realising that the tide has turned but that challenge is a big part of the pleasure of the job.

Although I've been doggedly writing about individual trades, it's with an increasing lack of enthusiasm, because I think that the value of the trading diary over the last few years has been to help me find my way back to this point. I've learnt and taught myself a lot about a methodical and disciplined approach to trading and having assimilated that knowledge, I have returned to the very intuitive style of my earlier days with the addition of that technical backbone.

So, it's goodbye from me, at least for now. I hope my work has helped a few people along the way and I wish any traders the utmost success.

Vacuum

More strength as we approach the mid point of the day's trading; the Asx 200 is up 20 at 4088, seemingly led by a strong futures market and arbitrage buying. It's still very patchy and volume seems thin so I'm assuming it's a continuation of short covering rather than a sea change. European markets returned all of their early gains last night as the reality of Spain's banking problems hit home so today's rally is either brave or foolhardy.

I've shorted MQG via the June 2500 puts – at worse levels unfortunately – but I think this is a retracement and the lows will be retested.

2.26 The market kept surging and didn't pause until it got close to last week's high at 4118. It's up 1.1% and we've built in a big overnight jump.

4.06 I sold out the last few puts in WBC at 150 (2050 equivalent in the underlying) as the stock made a new low and traded above that bar's high. The chart is odd because of a trade – clearly an error – that went through two dollars above the market.

4.14 The market went flat in the last hour but finished near the high at 4114, up 1.1%.

All day sucker

It looks like one of those markets which is going to push up to the close and would be typical of a day when there's no US trading to come overnight. It often seems as if one day's trade is stretched out to two so that a typical situation where an early short covering rally fades into the close is played out at a more leisurely pace. I have a couple of gold longs which have rallied well but my shorts are also up so it's a negative day overall.

Weekend polls from Greece show the incumbents back in the lead and this has helped sentiment along with more noise about a common Eurobond. However, the only concrete development on the weekend is the need for a Spanish government bail out of Bankia SA to the tune of EUR 19 billion.

The Asx 200 daily chart, below, is recovering after a fractional new low on Friday. It's a common reversal set up so despite my scepticism about Europe, I'm wary of getting caught out.

4.14 As per the script, the market kept pushing and some of the laggards had strong catch up rallies in the order of 5 to 10% with LYC winning the prize with a rally of 18% to 105.5. I'm disappointed to have missed out but it was patchy and I picked the wrong horses this morning. As posted earlier, this could continue to rally but I'm treating it as a one day wonder for now.

The Asx 200 closed up 39 to 4068, the high was 4071.

Crushed

The index can't recover and after a little early buying gave us a lift, the crushing reality of PMI figures from China and Europe have put the kybosh on any bounce in resources. On top of that, the banking sector is under pressure and the index is lower by 21 points at 2.44 pm.

It suits me although, once again, I don't have any big winners. That's partly because I've given up on shorting the resources and have been selling the better performers on the assumption that they will follow suit. I did have a couple of gold shorts too and they are the latest safe haven.

I bought back the RSG at 146.5 and went long a few there too. It looked reasonable earlier in the day but is fading now...not a big position though and I made a little on the short side.

I'm out of a few of the WBC puts at 176 (or 2024 equivalent in the stock) and the intraday low has been 2008. QBE has tested my patience all week but looks ready to resume the fall.

4.16 It wasn't a big day for me. I sold a couple more puts in WBC at 2008 equivalent and covered odds and ends elsewhere. The index close down 27 at 4029.

Buckling under

US markets recovered sharply from a 1.5% sell off to close square but the boost was short lived for us and the index is down 11 points at 1.46 pm. Despite being short, I have no real winners. I fiddled around early, buying a few of the mining services stocks since I thought there could be another kick to the retracement. That didn't happen and I got out of those positions having lost a little in each. In the meantime, the short positions are flat to up slightly.

The data point for today was Chinese flash PMI numbers, the independent measure of growth and that showed continuing contraction in the Chinese economy. It's helped to take Asian markets down about 0.5% on average.

My inclination is to reduce position size since the momentum has slowed and I'm vulnerable to a second leg of a retracement. Here's the XJO daily.

2.04 It's option expiry too, so the majors are stuck around strike prices which limits the possibilities for the rest of the afternoon.

4.06 There's very little to be said for today, simply a market that's waiting on developments. I sold a few more June 2200 puts in WBC at 162 to reduce exposure and covered bits and pieces elsewhere.

4.10 The market has closed down 11, finishing the day at 4056.

QBE under pressure

I was squeezed in QBE yesterday as the stock rallied against my short position but today is a different picture as early gains in the US faded with a flat close. The stock tends to track US 10 year bonds and a flight to safety is possible as the Greek exit draws closer with a US bond rally implying a lower QBE price. There is also the prospect of legislative change affecting margins in the US. Apart from that, the chart suggests the potential for the stock price to accelerate its fall from here assuming that the sharp rally from January is complete and the lows could be retested. Price has again overlapped the March breakout level of 1230.

QBE is lower by over 3% while the broad market is down 1% with banks and other financials falling on a par with the index by and large.

The RSG short has performed, dropping 6 to 145 and I've added another gold short in SBM at 190.

4.19 The market failed to recover significantly intraday and drifted down to close just off the lows at 4067, a drop of 54 points or 1.3%. A good day for me and I'm predominantly short again having also added QRN and PNA. I covered bits and pieces of other sold positions, buying some CPU, IAG, ORG, RSG and WTF.

Here's the QRN chart. It's another continuation pattern and I'm short at 336.

PNA is similar although it has had some support in the last few days and may not have finished the retracement. I've done some at 282 and would consider selling more on a weak rally. Stop is at 300.

At the moment I'm tending to jump in and out of stocks while holding a core position so I bought back some CPU today at around 784 having shorted extra yesterday at 797. The stock looked very weak by the end of day and I would look to reshort on any minor bounce.

All boats lifted

The rising tide of a relief rally is lifting most of the market. The index has pushed steadily all day. At first, the speccy longs did best but then the larger cap shorts started to rally more strongly so that I'm slightly down thanks to QBE and WBC despite having done well in ASL, AGO, IMD, NWH etc.

I've been selling out of the smaller cap longs but I've also covered a couple of shorts in ALL and JHX. I'll be net short overnight because I don't want to fight a strong downtrend although there's certainly more scope for a retracement rally.

I've added a new short in RSG at 149. It was looking pretty weak but has just perked up. I'm hoping for a resumption of the sell off.

4.14 It was a grinding rally with some minor selling into the match. Up 47 to 4121.

June 17 is the driver

The game has shifted to hypothesising about the Greek election on June 17th. Will Greece leave the Euro and how will the world cope? What attitude will the authorities takes? For example, there has been confirmation that EU leaders want Greece to remain in the bloc but they will probably stop short of making life too easy for the anti-austerity camp.

My take is that the worry and unlikelihood of stimulus talk will continue to depress markets but that there is scope for more of a bounce in the next day or two. It's just past 3 pm and the market has yo-yoed but is up 21 now. Margin calls took the wind out of an early bounce in smaller miners and mining services but there's a second attempt now.

I've had a hairy day with my holdings in this sector but there's a little improvement now. One example is IMD, a mining services stock that has been hard hit but with the possibility of a reversal if we get a good close. I was long at 199 and 195 and bought more at 191.5. I've managed to sell some out at 195 and 197 while staying long as I try to finesse my way into a possible bounce. The daily looks ready to turn but there's no signal.

The 30 minute chart shows a minor breakout above 192.

Funding should continue to be tight for Australian banks so I'm staying short WBC despite a 1% bounce today and QBE is falling on fears of regulatory change affecting US insurance margins. Here's the QBE daily.

4.25 The market pushed up to finish 27 points higher at 4074. It's an inside day and probably not terribly significant but I got some relief with the potential reversals as they mostly bounced off the lows and some rallied on the day. IMD finished at 196.5 but I sold some more at 199 to take the average buying price to about 193. It was much the same in AGO, BLY and WSA although NWH fell on the day. I got out of NCM early on at a good price along with the remainder of a long in RSG. The shorts didn't move much but did bounce a touch with the market. However, I also covered some of the CPU, JHX, NUF and ORG at reasonably good levels as I was mildly bullish in the short term.

Gold, at least

The end game may have begun with Greek banks tottering and European leaders forced into a corner again. US indices fell hard on heavy volume and Asian markets are down 2% plus. The Asx 200 was lower by more than 2% earlier but has had a minor rally to be off by 75 points or 1.8% at 4082, at 1.42 pm. My small punts in gold and mining services stocks have been mixed with rises in the gold stocks cancelling out further falls in the drillers and diggers. That's an ok result with my biggest shorts – QBE and WBC – performing pretty well. QBE is 3% off and WBC is lower by 2.3%. I sold half the June 2200 puts at 155 when WBC was at an intraday low, so that helped.

There are no serious new trades although I've been hopping in and out of all manner of stocks. I was keen on NCM yesterday but didn't buy. I bought some on the open at 2465 and they've bounced further. Not sure whether to keep them. Here's the daily.

It's probably a reasonable long actually. A minor new low on Wednesday failed to hold and the wave count looks quite complete.

2.15 Short ALL at 290 with a stop at 300. It has been congesting and may be ready for a leg down.

3.28 It's worth looking at the index.

The intraday rally didn't hold and the loss is 110 points.

4.16 I'm playing the same game tonight with longs in smaller resources and mining services and shorts in financials and larger caps. The dollar value is larger on the short side and that made the difference today with QBE and WBC down over 3%. I've been in and out of these smaller stocks but took a minor hit on them today. For example, I'd sold all but 2.5k of the 15k NWH I bought yesterday afternoon. Today the stock fell 25 to 320 and I bought another 5k at 325. It's not a big position but I've repeated the process over about a dozen stocks which makes it a dangerous game but one that will provide an excellent hedge or better if we get a bounce back.

The Asx 200 kept falling to touch 4026 before a mild rally to the close at 4046, a loss of 111.

Switcheroo

It's a steadily falling market with the Asx 200 down 0.5% at 2.44 pm as an early bounce faded. Resource stocks are a bit firmer with financials under pressure. I've been in and out of a few of the hard hit stocks trying to hedge up my shorts elsewhere. I scratched most of the trades this morning but it looks as if there's a second attempt this afternoon and I've gone long IMD at 199, NWH at 231 and RSG at 144 with hopes of an oversold bounce.

Here's IMD.

NWH.

And RSG.

I've shorted CPU at 814 with a trailing stop.

Of the existing short positions, IAG is a bit firmer on company news while QBE and WBC are firmly lower. JHX is a touch stronger but I sold a few into early strength and covered them so the position is fine.

I also shorted NUF at 479 (and covered a few at 469) as the stock had a false break, made a lower high and is reversing.

And I closed out the last of the TOL short at 447 on the open, a drop of 26, thinking I'd done well to wait an extra night. It promptly fell another 18 cents.

4.20 The index recovered to square before slipping to finish down 8 at 4157. The short term longs worked well and I sold out half of the IMD at 206, the NWH at 339 and the RSG at 148. I added some ASL, KAR, KCN and SBM in small size on the same theme. The majors continued to be on the weak side.

Not so safe havens

It's just after 2 pm and the index is very close to the day's low, down 94 at 4172. Towards the close of yesterday's trading, early signs for Europe and the US looked quite good and that kept a lid on any falls. Those markets couldn't sustain early strength and despite the falls being moderate, the losses here are steep. Resources remain under pressure but the selling is now across the board. I've closed out short positions in MQG, NCM, PRU, UGL and WSA and have had a very good result in TOL which has fallen 15% on a profit warning. Out of half of the short at 485 with the stock now at 475.

I also sold the XJO puts for about 50 which is a small loss. They're worth about 80 now but although I was bearish, I didn't expect the scale of the selling we've seen today and they expire first thing tomorrow morning. I'm reasonably happy since they could have been worthless today if it had been another day of consolidation. The WBC puts are beginning to perform ok with the stock down 1.3%.

I've added new short positions in IAG and QBE as I'm betting that the selling will move into the outperforming sectors. Short IAG at 337 as it breaks support.

Short QBE at 1330 as it seems to have finished a minor retracement.

4.37 The fall cracked the 100 point mark to leave the close at the low, down 101 at 4165. Nothing much was able to rally but WBC was the best performer of the major banks, falling just 1%, so I'm hoping for some catch up in the next day or so. It was a good day and the month has been healthy too; it helps when the market starts to show some volatility. Here's a daily for the Asx 200.

Waiting for the end game

I've heard the term "end game" over the last few days in relation to Greece exiting the Euro. If it plays out in the next week or so, there could be havoc in the market. It makes it hard to find a reason to buy in the short term although the sell off has been very orderly with no sign of panic and the VIX subdued. The Australian market is not seeing capitulation, just rotation into safe havens and I've been a little disappointed with the relative strength of the banks.

At 3.37 pm, the index is slipping back from intraday highs and is sitting at 4262, down 35. I've had a good day on the short side and have closed out FMG at 505 and KCN at 540. I also had some minor short positions in MQG, NCM and WPL which have come back nicely.

I'm holding onto the XJO May 4250 puts and they're close to the money. They expire on Thursday and I'm banking on more weakness. I'm reasonably comfortable because the market had three inside days, ie there was plenty of time to cover shorts.

I've added a short in UGL at 1240. It's not the greatest trade in the world but it's a continuation after a minor retracement and I'm looking for a quick move.

4.18 All over for the day with a minor rally to 4266 as US futures strengthen a touch.

Clayton's squeeze

At 2.28 pm, the market is up 4 in an edgy day's trading. Adjusting for the WBC dividend, the rise is 10 points. It feels like a squeeze but the index is not really going anywhere and I'm generally staying short.

I'm slightly disappointed in WBC. It's down 74 cents compared to a dividend of 82 cents and this is less than the rise in the other banks but nevertheless, there's often a vacuum once the yield driven buyers have gone. My positions are little changed except for the XJO May 4250 puts which have been hit by time decay and are down to 12.

I'm short a small amount of WPL at 3364 and it's starting to tip over. There was a powerful drive down and the retracement has been minimal.

FMG is similar.

4.12 There was no selling interest and the market pushed higher to close at 4297, up 12.

No repercussions yet

The local market is unconcerned about US futures having sold off after market because of JP Morgan's disclosure of a large hedging loss. Other US banks are also lower in late trade on the premise that trading conditions are tricky now. The upshot is that it has been another day of tinkering with my book without making major changes. I've day traded a handful of things and it hasn't amounted to much either way and the overnight positions are mildly positive.

I suspect this is a pause before further weakness but that there will be better buying opportunities after that. The chart, below, is of the Asx 200 index on a 60 minute scale. I see the rally as having faltered at short term resistance around 4300. If that's the case then this leg down might go to about 4220. It's at 4285 now.

4.19 The market squeezed up till mid afternoon so it was another grinding day; there was a minor sell off after more soft Chinese numbers at 3.30 pm but the losses were limited to 10 points and the Asx 200 finished at 4285.

I did add a couple of extra shorts in stocks that look to be in retracement mode but in trivial size really. Enough to keep them on my radar so that if they start to resume their falls in earnest, I may be able to get on board.

Dividend play

It's just after 3 pm and the index is holding on to two points of gains as it puts in a good performance following more negative overnight leads. I'm not convinced yet but pleased that I'd bought back most of my shorts. In the end, I've added to those positions on the rebound.

Short a few more FMG at 538 and some TOL at 563. I also sold more JHX and KCN but covered those as they adjusted after overshooting. The main new trade is some June puts in WBC. I'd decided to avoid using options on anything but the XJO unless I was putting on spreads. However, I've compromised by trading in something with more than a month to go. I'm long the June 2200 puts at 43 (from yesterday) and 49 today. The stock is trading at 2278 but goes ex-dividend 82 cents in a couple of days. The banks generally fall more than the dividend once they go ex-dividend as so much of the buying is yield seeking. An example is ANZ which is down a dollar today after going ex a 66 c dividend despite a lightly stronger market.

Here's the WBC daily. After a grinding rally, I'm hoping for a decent pullback.

4.13 The last hour saw more buying which pushed the index back to 4296, a rise of 20. I got a bit squeezed but left my positions alone.

Not much bargain hunting

The market has driven lower today with the Asx 200 at 4264, down 50, at 2.21 pm. I was worried about more retracement but yesterday was it. I've continued to cover shorts and roll into stocks that have had a rebound and look ready to renew their falls. So, out of AWE, IMD, OST and PNA and half of the KCN and TOL and back into FMG, NWH, WPL and WTF on the short side. In fact, I've covered the WPL and most of the NWH now as they've moved strongly intraday.

Here's the FMG daily. I shorted at 537 and I'll use a trailing stop.

Short some WTF at 406; I may be a bit early so the position is small.

I'm also short some JHX at 730 which aren't performing yet. The chart looks weak but they benefit from a lower AUD and a strengthening US housing market so it could be the sort of thing which will continue to outperform. I'll be quick to get out if there's no joy here.

4.13 There was some minor buying at the end and losses were trimmed to 39 points. I sold another handful of XJO puts at 39.

Budget night

The Australian market is 7 points higher at 3.09 pm which is a very modest recovery from yesterday's fall despite the big sell off in Europe and the US having failed to appear. The market is starting to bottom out in the short term though and with the prospect of a responsible budget tonight, there may be more life in the retracement.

I've done little today except to tidy up a few positions. I covered the last of some short positions in BPT, CGF, OSH and OZL at levels roughly the same as the previous closes. I'm still short OST which is down again but have bought back more at around 119.

I've been short gold miner, KCN, for a couple of days and I've added a few more at 592. I'm chasing this a bit but the stock looks poised to fall further having confirmed the break yesterday and failed to recover today.

I've had another go at buying JBH as it went fractionally lower yesterday but could be rolling up now. A break of yesterday's 950 high would be handy.

I sold a handful of the XJO May 4250 puts yesterday at 35 but kept most and the price has slipped to 23. They expire next week so I definitely don't want to see too much consolidation.

4.16 There was a little late strength and the index finished up 13 at 4314. Actually, I'm not thrilled about being short overall, there was a minor new low on the intraday charts which was rejected...quite a good sign of a short term bottom. The main thing in favour of staying short is that the market ran through 4400 before falling so there are probably still some disappointed longs that might need to get out.

Serious weakness

This is more like it; the Asx 200 is lower by 1.8% or 78 points, at 2.20 pm. That's despite the banks relative outperformance. I've stopped out of longs in ALL, CPU, IPL, JBH, TOL and WTF. There's not much damage done in any of them and shorts have performed well, especially in BPT, IMD, OST and PNA. In addition, the XJO May 4250 puts that had lost most of their value are staging a recovery as they trade back to 25.

I'm not sure if we've seen the low for today but losses are accelerating thanks to indications of a slowing in growth for the US economy and a European austerity backlash from voters in France and Greece. I plan to hold on to the XJO puts overnight, at least.

After stopping out of TOL, I realised that there was now a decent sell signal and I've gone short at 570. It's better quality than the long I'd taken which was as much about providing some balance to a predominantly short trading book.

4.14 I stopped out of one of the last long positions in MSB at 716 as it broke 720 support. The market sold off into the last hour although there was a minor rally at the match. Opening calls for Europe and the US are pretty weak too. Since the XJO puts are becoming more significant and also because I generally do it, I nibbled at a few of the shorts where they were sold down. Overall, the index fell 95 to 4301.

Dollar dazzlers

The market is finally having a soft day, down 28 to 4401 at 2 pm. I've had a good day on the short side and the longs are reasonably steady. Covered the last shorts in ASL and BLY, both in the low 380s average, with the stocks trading down into the 370s. I added shorts in two other mining services companies which had been retracing. Short BKN at 736 and IMD at 260 with trailing stops.

Here's BKN...covered a couple back at 722 but still short.

The daily chart for IMD is below.

I added another continuation short in BPT at 140.

The Reserve bank has lowered inflation expectations, firming up the chances of further rate cuts and the dollar has eased down to 1.026 to the USD. I'm already long ALL which is a beneficiary of a weaker dollar and I've added CPU at 856. This had a great run through to mid April and has retraced since. It's not the greatest looking chart but the stock seems to be finding support here and the momentum of the sell off was weak. Stop is at 840.

I added a couple of potential reversal longs – very tentatively. The first is JBH at 945.

The next is WTF at 401.

I stopped out of the last of the RSG at 164 though I did get some away at 171 late yesterday. I also sold out a couple more ERA at 181 and don't have much left there.

It's mainly the banks that are keeping the Aussie market afloat and they're looking very extended now. Here's WBC.

4.19 The banks began to roll over and the market fell 33 to finish at 4396. There was some late buying which took the edge off the fall. It's a decent pullback but the trend is intact for now which means that although I'm bearish in the medium term, I'm fairly balanced as far as my book is concerned.

The reversal longs in JBH and WTF closed well but not conclusively and I sold out a tiny amount of both at modestly better levels than the entries. The last two days have been a welcome reversal of fortune for me and I'm looking forward to next week.

Another doji?

At 2 pm, the Asx 200 is a smidgin higher and today is shaping up to be another doji bar on a daily chart. Despite that, there's a bit of action.

The smaller resources and mining services sector has been weak. I've covered half of each short position in AGO at 266, ASL at 404 and BLY at 402. On the long side, RSG is doing well as is a small position I added before yesterday's close in ERA. I only bought 10k, thinking I could buy more on the open but it took off. Long at 165 and out of half at 176 with the stock up to 181.

When I was short TOL, I noticed that the sell off was grudging and I punted some at 580 this morning after yesterday's positive close. The stock did nothing until half an hour ago when it popped 10 cents. I sold a couple there.

I covered my NWH short yesterday even though the stock had broken down. However, I was short a bunch of things and my assistant was still short these. He's done well today as NWH has taken a beating.

2.34 I'm having another go at Aristocrat. The company confirmed strong guidance yesterday and the stock had a run but then retraced sharply. After a touch of early weakness, it has gathered strength today. Long at 312 with a stop at 299.

4.24 The index clung to breakeven but sold down a few points in the match to be off 7 at 4429. TOL wound back and I bought back the stock I'd sold at the original price of 580. Otherwise, the only weak spot was MSB which fell 20 to 751. I also bought extra here, at 754, having sold some yesterday.