Laggards

Concern about the lack of a Greek debt deal is on the backburner as markets have run on encouraging news. First was the round of strong PMI figures and then Friday saw improvements in US employment. So those extended trends in Europe and the US continue to chug along and the more subdued markets in our time zone are keeping up to some extent. At 2.32 pm, the lift in the Asx 200 is 47 points or 1.1% with the level at 4298, down from early highs of 4310.

I'm hoping for some acceleration in our market although the upcoming results season may not help because it's expected to be subdued. Even if the index is simply able to stick to the uptrend channel then there's room for a couple more up days.

I've had my long position in IPL since just before Christmas and I've been stuck in a slowly turning situation. There was clearly a very large seller over the last couple of weeks and it seemed to be finishing on Friday. I didn't want to bail out on the first sign of strength so I made a point of buying some more at 319 as the stock price moved towards near term resistance. My stop is now at 308, just below the 2 recent minor lows, and I'm hoping for a little surge through 330.

The intraday high in IPL is 324 and the stock is trading at 323, 324. The high of last week was 322 on Monday and since then a minor 1-2-3 buy signal has formed with a trigger at 323.

My other two positions are solidly higher. AGO has reached my first target with a trade above the previous swing high of 333. I'll probably move to a trailing stop here although it depends on the context.

PNA almost reached the previous swing high in morning trade after good drilling news was announced to the market. I'll do much the same here as with AGO.

Wake me when it's over

It's a very sleepy day with no overnight leads and a market that has traded in a narrow range. My positions are little changed but I have some minor hopes in IPL. The presence of a big seller was pretty obvious yesterday but today there have been some crossings going through so the order might be coming to an end.

European and US indices look quite stretched. A couple of examples. First, the S&P 500.

Then the FTSE 100, also on a daily basis.

The HSI is less stretched.

The Shanghai index is showing signs of life, pushing through previous lows.

The Japanese indices are looking quite bullish, here's the TOPIX.

Given that the trend hasn't changed in Europe and the US and the Asian indices look pretty good, I'm reasonably confident that the Asx 200 is not headed for the trap door despite the fact that the action is wishy washy.

Back in business

PMI numbers were universally good and markets were buoyant overnight leaving the picture better than expected and the scenario of a surprise rally still in play. Mind you, the local market is reluctant to go too hard and the rise is 1.1%, not much more than the fall yesterday on no news.

IPL continues to be under pressure and is down 2 but PNA has had a reasonably good day. I've added a new position in a growth stock, iron ore producer AGO. It's resuming a rally after a retracement and I'm long at 314 with a target around 340 and a stop at 300. Not sensational risk/reward but a pretty good probability trade – it's already in a trend and it has momentum. Trading at 316.

I had lunch with a friend who works as a consultant to investment funds. He thinks that a rally would gather steam because so many funds are underweight and would be obliged to jump in and buy after a certain point. I hope so, there would be plenty of decent moves on short squeezes.

Mixed picture

US economic recovery is stalling but China had a better January than expected despite the New Year holidays. US indices held their ground and so have the Chinese, largely, but the Aussie market is 33 points lower at 3.44 pm. I got out of IAU early for an average price slightly above 128 so it didn't cost me to miss the previous days close of 127.5. I also sold out of BRU at 137 which was fading following some early strength.

I'm left with two position. The first is in IPL – down at 316 - and maybe I should have taken advantage of the late uplift yesterday where the close was 321. I'm not committed to the trade. The second is fine, it's a long in PNA which is down 2 at 349 and performing reasonably well in a weak market.

The Asx 200 is at an inflection point. Maybe it finds support around 4200 which would mean there was no significant overlap from the first leg up in early January or else it's a typical weak retracement where this grinding move is all we're going to get. A good time to have very few positions and await developments.

Perfectionism

I'm always looking for the perfect trade and yet, I've often had too many positions so I clearly haven't been discriminating enough. What is the perfect trade for me? Is it to catch momentum and get a great move – say, 5 or 10% – in a few days and then get out? This might be something like AWE. (Chart is in yesterday's post). Or is it to get a nice low risk entry allowing time to accumulate a good size position and then have the trend resume? Hopefully, like PNA, which I've bought this morning at 343.7 average. (Stop is at 332).

I think it's the style of trade taken in AWE or BRU.

The pitfalls are that you don't get filled, as in BRU, above. I was keen to buy the day before but in this case, the downside was too large with the previous low at 110. I suppose I could have gone with a very tight stop using the low from last week of 123.

You can also catch a false break and generally it can get too intense and dependent on momentum rather than driven by a broader trend view. For example, PNA is in a decent trend, it has just pulled back from a fast move to a broad area of support, the rally took it clearly through longer term resistance and there is no extended topping out pattern. My stop would be triggered on a break of the first leg of the move which is just a few percent away from the entry while the target to the upside would be 380-400 which is roughly 11 to 15% giving a decent risk/reward ratio.

There's even been an element of instant gratification to the trade with a reversal from the early weakness that I bought into and the stock now back up at 351.

The other two positions are problematic. IAU is grinding up and if I wasn't still bullish about the market overall, I'd get out. There's a chance that it can transform but it would need to accelerate while the day of reckoning is at hand if it drifts back into the mid 120s.

IPL is worse. It is stuck in a range and me with it. It's still making higher lows despite yesterday's softness and it could have a more dramatic leg up. Nevertheless, the trade has been a trap. With the momentum in the resource stocks, there would have been plenty of better places to take a position.

The Asx 200 is up 11 or 12 points after a flat morning, taking heart from a better opening in China. It looks ok to me, not flash but tending to consolidate in a tight range after little jumps. It's the sort of chart you get in a short covering rally.

I've been thinking about using options in the XJO (or Asx 200) but I had a strong opinion in early January and could have benefitted then but will now wait for a better opportunity.

4.14 The index drifted off to close down 10 points at 4263. It could have been some profit taking with the Asx 200 about 5% higher for the month.

IAU slipped to close lower but IPL rallied to 321, while BRU and PNA were firm. I'd pretty much decided to sell out of IAU but wasn't aggressive enough. I may get another chance first thing.

Hiatus

I took the last few days off and visited friends up the coast. The outcome was ok with my positions benefitting from some minor market strength. The Asx 200 is not leaping out of the blocks though, constrained by a rising currency and continued caution.

Chinese markets come back online after the holiday week and we still await the latest Greek debt deal so the action today is muted. I'm quite bullish and my favoured scenario is for a run up through 4450 resistance to about 4600 but the lack of take off in the recent rally is pouring cold water on my thesis.

I have long positions in AWE, IAU and IPL. AWE is going very well although a quarterly report tomorrow would trigger profit taking if it wasn't good enough.

IAU is reflecting the top 200 with a grudging rally and doesn't seem to be getting any boost from the gold rally.

IPL is the worst performer, struggling to go anywhere.

4.11 I sold out of AWE at 154. It was a good trade because it was in reasonable size and there was a relatively quick move from the 137.5 entry level. I'm not clear on how long I want to hold positions. Ideally, I want to hold them for longer but the doji bar after a quick move is a warning and the quarterly report could provide a profit taking excuse. The main thing was my gut feeling. I've been comfortable with the position for 5 trading days but today I felt uneasy and was looking for reasons to sell.

Here's the daily after the finish of trade.

I bought BRU at 128.5 in mid afternoon. I only got about half of the stock I wanted as it took off. It's a thinly traded junior resource stock so even the reduced position size I'd planned was tricky. I got just under 18,000 shares and my stop is at 122. It finished at 133 and I'm hoping for a rapid move above the recent high.

IAU and IPL both pulled back 1.9% as the resource sector was mostly weaker in a mildly soft overall market.

Awe inspiring

It's a tacky pun, but AWE continues to do well. At 12.45 pm, it's up another 3.5 at 149 after touching 152.5 in early trade. Yesterday morning saw an announcement of an Indonesian oil acquisition which the market is impressed with and signs are that the new management team is finding favour.

I'm getting my head around the implications of trading larger size with fewer positions and trying to work out what time frame would work. For example, with AWE, do I hold through a congestion/retracement and look for the next leg up? Probably, but it depends on how big the spike is. If it kept going for another couple of days I'd probably just take profits.

The prospect of trying to find trades with big payoffs has got me thinking about options again. Macquarie bank stands out on a weekly chart and with $30 a strong possibility and the stock trading at 2520, a 2 or 3 month out of the money call option would stack up.

Here's the weekly. For the moment, I'm just thinking it through but would be interested on a pullback. It's a bit stretched on the daily.

It's another play on a market rally and the idea is that this would be an outperformer if the market took off.