November 28, 2008 – Still looking up

Our long side plays remain intact with some good gains recorded by BHP (+7.6%) and ASX (+4.2%). IRE increased +2.2% with DJS remaining slightly out of the money. Today we added a short position in NCM. We took a conservative entry but there was a much better, if not aggressive stance available but we chose not to take it based on the US holiday. It would’ve paid off nicely, but thems the breaks! The account now stands at +3.3%. based on 0.5% risk per trade.

Trades executed today:

And the account status as at cob:

November 27, 2008 – Holding, for now…

No change in positions at this stage; we retain 4 longs – ASX, BHP, DJS and IRE. All but BHP are wallowing near entry levels. Not much to do at this stage but allow the market to do what it wants. The account is now +2.1% although there is a long way to go before these trades bank firm profits and as we know in this environment anything can happen.

Account status:

November 25, 2008 – Up ‘n away…

The domestic market finally decided to hold some of its gains on back of a strong US which is a positive sign that maybe we do have a good low in place. It’s a shortened week in the US so anything can happen. BHP jumped over 12% for us today although we can never be entirely comfortable defending a position there because of its ability to gap around. IRE and ASX also showed some life with DJS the only position slightly left out of the money. All these positions have high targets to achieve so we’ll not be getting to excited with such a long journey yet to be traveled.

No new trades today.

Account status:

November 24, 2008 – Full Trade Summary

Our existing 3 short positions were closed early in the session locking in a moderate profit. We are now completely square in the US and anticpate a counter trend rally to unfold over the coming weeks, possibly into year end. More on that is discussed in the secure area.¬† As the account is now square I have decided to lock in the currency profits generated by losses in the A$ whilst we’ve been making profits in US$. As such tonights statement balance may change once the transaction is completed later today, but in simple terms the account is now +12.8% in profit in 7-weeks. You can download a list of those specific trades at the bottom of this post.

Trades executed last night:

Account status (before fx conversion):

You can download a complete summary of trades completed for this account here:

.

November 24, 2008 – Getting long…gulp

I made an argument to subscribers this weekend for a moderate low point in the market. Whilst nothing is ever a sure thing with the markets, there was compelling evidence that if a low point was to be made it could have been on Friday. That said, the key driver is the US and this week see’s a holiday shortened week but one full of rampant data releases, some of which may not be kind.

We initiated 4 long trades today; ASX, BHP, DJS and IRE. We suffered some entry slippage on most due to the strong close in the US and most failed to get on with it. It’s a big call to trade against this weekly trend but all these setups offered extra risk/reward payoffs should they come up with the goods. Sometime you just need to roll the dice and see what falls.

Trades today:

The account dopped a marginal $100 today. As usual we’re keeping the risk very low at 0.5% so downside if all are stopped out will not be overly drastic.

November 22, 2008 – Almost, but not quite

A very volatile session in the US on Friday with one or two of our targets missed by the narrowest of margins. Indeed the short target in HOLX was missed by a mere 3c before the stock rallied hard into the close. Such it can be with trading. We’re not sure whether the strong closing surge in the US was a Friday short covering rally or the start of something bigger. We saw the same thing happen the prior week before fizzling out. Either way we must act accordingly to the information being offered by the market and I have therefore dropped all protective stops tight to current action to lock in profits.

No fills on Friday to report. Account statements as at close:

November 21, 2008 – Short and sweet…

All positions moved favourably and profits were banked on ORI. View trade:

A few people have asked me what ‘R’ stands for. ‘R’ is the initial risk of a trade, usually stated as a percentage value of the account. Everything we do should be measured in ‘R’ because it equalizes all trades in terms of risk. We do not attempt to pick one trade over another because the outcome on any single trade is always unknown. As such each and every losing trade must have the same impact on the account, and that impact is ‘R’. For this model account ‘R’ is 0.5%.

All open positions have their respective stops at breakeven. Some are close to their target levels which we will adhere to.

Trades executed last night:

The account is now +12% in 7-weeks, or 24R, including open trade equity. Had we been more aggressive and use the standard 2% risk we’d be +48%, however, we tread cautiously and build the account over the long term using low risk compounding.

November 21, 2008 – Short Selling Irony

We remain sidelined in Australia until next week or so. Suggestions are being put forward to subscribers but formal recommendations with trade management are not until we’re comfortable. Sure, opportunities are being missed, but we’re taking the cautious line.

Gerry Harvey has come out today having a whinge about short sellers, quote, “…all short sellers should be shot…“. What a ridiculous comment. It seems that nobody had an issue with short sellers whilst the market belted higher through to end of 2007. It seems that many have forgotten that hedge and private equity funds were heavily responsible for driving up share and commodity prices in the first place, benefiting many including old mate Gerry himself. A lot or people made a lot of money from these guys and many attributed these gains to their own brilliance. Now the market has turned, so have the hedge funds yet the brilliance of the followers seems to have fallen short of the mark – no pun intended.¬† Short selling has been an integral part of US market for 100-years and in that time one could argue that the US economy has become an economic powerhouse during that time and in turn argue that the impact of short sellers has been minimal,¬† even if the US is under immense pressure at present.

But apparently its okay to make money when its easy, but when the tide turns these people cry foul. The markets work both ways chaps but it seems the only people to really get this is the hedge funds who adapted accordingly.

Don’t get me wrong, I don’t approve of a hedge fund targeting a company in order to run it into the ground either, but exactly how much short selling is really going on? Where are the facts on this? It appears that if a company comes under pressure then it can only be short sellers…what bollocks. Get a grip and get some facts. Since short selling has been banned in Australia we have seen unprecedented volatility and a reversion to the mean after 5-years of glorious bullish conditions. There is no institutional support in the market because investors are still redeeming funds and will continue to do so until confidence returns. An institution will only buy stocks when they have cash available to do so and then its a matter of them deciding when the time is right. Clearly they lack cash or are unwilling to step up to the plate or they both. In the interim the market meanders lower and retail investors, sucked into the stock market by the June 2007 SMSF changes are copping margin calls with many sustaining forced sales. We’re in a spiral without the short sellers anyway.

My opinion is that if ASIC are truly convinced hedge funds are damaging the market, then limits should be imposed on each account rather than a straight ban. Perhaps an account, institutional or retail, can have a short sale limitation of $100,000 per symbol. This will enable the average retail trader to particpate on the short side yet disuade hedge funds from piling in with their billions and causing the alleged damage.

We need to remember that there are plenty of companies built on thin air. It’s happened before and no doubt it will happen again. Every bull market brings in the sucker play to ride the coat tails of the mania. The resource boom is no different to the Tech boom, just a different sector with different players, but same outcome. It seems that the blame for that same outcome is incorrectly based on the short sellers this time around.

Nick Radge
November 2008

November 19, 2008 – Staying short

There is not much to do when the market’s doing what you want. We’ve patiently waited for strength to align ourselves with the weekly trend and as soon as that strength starts to slip, we get short and allow the larger trend to do its thing. We retain 4 shorts, all of which moved well for us last night. No new positions have been added, nor will they at this stage. Another down session will allow almost all stops to be at break even and then its just a matter of letting the market unfold. A serious down session may bring one or two targets into play. As at writing the open trade equity is at all time highs, +10.8% in 7-weeks. Here is the current statement:

November 18 2008 – upping the ante

2 new shorts added tonight, LH and ORI, taking total short trades to 4. This is aboout as much as I’m willing to take at the moment. The US indices are showing some signs of downside resiliance here so I’m happy to stay with the current exposure and let this choppy price action recede.

Trades executed last night:

And the account balance, which started at A$50,000 on October 1st using 0.5% risk per trade.

Next Page »