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.