Lihir Gold

Added LHG to my investment portfolio @ $3.03.

Developing my Trading Rules

To put my theory of trading the range in OXR to the test, I shorted @ 305 yesterday - it was 10:13 AM, the stock was up 5 cents from Friday's close. Guess what - WRONG CALL! The market drifted back to 304, before moving inexorably onwards to close at 307. Today - low of 305 (at the open), high of 313.

So - the exception to the rule was the one time when I decided to put my money on the line! I don't know whether to laugh or pound my head against a very solid rock.

ILU, meanwhile, gave me a shock as well - I have a price target of 571 - but she closed up at 590! Today, she's the only trade that's actually in the green, currently at 577.

The XJO is going bananas today. Down 50 pts, then up 50, then down 50 again - and its just 12.41 pm! Getting a bit dizzy.

Apart from my profit on ILU, I'm down $480 (MTM basis @ 12:45 PM). Here's what I think I should do with the positions:
ILU: let it run to 571
OXR: close it as near as 307 as I can.
AWB: I see support at 343, so it should do something positive from there.
BHP: get out quickly
AMP: reset target to take profits @ 1100 - which was touched earlier today.
AGK: it closed @ 1610 yesterday. have had faith that this stock will recover so that at the least I can break even on the trade.

Further, all of yesterday, I've been thinking about some rules that I need to follow to make this work. This is what I've come up with:
1. Always trade the trend from the trend-line. Whenever I've done that, I've made a profit (eg. ZFX, SMY, VBA trades earlier).
2. Look for complete positive signals from charts. Essentially, avoid doing an AGK or BHP again - where the stochastics were obviously bearish.
3. Do not trade on a whim. Avoid trying to catch a falling knife (like my long AWB @ 360 and short OXR @ 305 positions now)
4. Be patient, not greedy. I'm not going to put more than 2% of my capital at risk. Currently, that works out to $80. This would mean smaller positions and profits - but so be it.
5. Be thankful for my opportunities. I don't mean this is a religious way, but really - thankful to Mr. Market for putting opportunities of profit in front of me.

Now, to see if I can stick with these.

Still Standing!

It's been awhile since I posted anything here. My CFD trading, however, has not gone away. Have been refining my approach, with varying degree of success. I still need to remember not to jump in on a whim.

The last week or so has actually been quite a trial-by-fire for me. The Friday before last, my MTM position was -$451. That was over 10% of my capital, and had me in a bit of thought through the weekend. Things went south when the Aussie crossed $0.83 vs the US$ - causing people to pause and take profits. Of course, I didn't - since it caught me on the hop. However, it was quite a sight - watching the red pile up in rapid succession from the opening bell. It reached -$500 in no time, before I couldn't bear to watch it anymore. Was transfixed - 'shock and awe' are the terms that come to mind, not wanting to book my losses. Talk about having your heart in your stomach! Incredibly, I came out of that last week - and while I still hold the (loss making) positions on AGK and BHP (both ill-thought out and ill-timed positions), in the others (SMY, MXG, ZFX and WPL) I ended up making not too shabby a profit, all things considered.

In the meantime, the XJO has reached new heights, I've signed up with Australian Stock Report - and hopefully, this week I should see myself finally turn a profit on my CFD capital. I'm currently about $600 short of $5000 (that $1300 hit on Gold 2 weeks ago has left quite an impact), but am short ILU and have plans for AMP and OXR tomorrow. If all goes according to plan, by Wednesday, I should be about $500 ahead.

I shorted ILU @ $5.98, and then added a massive short @ $5.81. My target for this is $5.71. I'm planning to go long AMP tomorrow at $10.85 or better - she's about to breakout, though I haven't quite worked out what the upside could be.

Also, planning on implementing a new strategy tomorrow. I've noticed that OXR has a dramatic movement in the first 15 minutes of trading. It then swings the other way; and I suppose this is typical of fade-in and fade-out that the big boys do to grab money of us poor unsuspecting sods. The thing that is of great interest to me is that the variation from it's high/low of the first 15 minutes can be 2%. I'm planning to trade the range tomorrow to test my theory, and if it works out, I might just have discovered a fairly reliable cash-cow trade :)

Bluechip Blues

Added AWB @ 355 today. Hopefully, this works out; even so, (I think) the charts indicate its time to breakout.

Here's the thing - both the bluechips I'm long in (BHP and NCM) have underperformed. In fact, NCM actually dropped - and I'm down $75 on it today; whereas I'm up $12 in BHP. AGK was a shocker as well - but I think she'll pull up tomorrow.

On the other hand, OXR, VBA and ZFX have done wonders, TLS wasn't too bad either.

I'm coming round to the view that I need to just trade companies that have a price of $5 or less - for starters, they don't gap at the open, and they're easier to chart.

I also think I need to trade fewer companies - I need to find just one good company at a time and increase my commitment to it. Currently, I don't buy more than $5000 worth of CFDs at a time. For example, if I'd just stuck with OXR last week instead of getting involved in the BHPs and NCMs of the world, my profits would have been bigger.

The reason I've spread my investment is to diversify my risk. I'm still not confident enough in my ability to read the stock movement. However, truth be told - I haven't done terribly badly. I picked OXR, TLS and VBA before they ran - and in the case of OXR, I managed to buy and sell at the good ends of the run. Besides, I think tracking 1 or 2 stocks is easier than tracking 9 or 10.

Update for today

Exited my OXR position @ 321. $330 profit - my biggest so far! Wanted to hold out to 323, but decided against it. In the end, it was a good move, since it closed @ 320.

Added VBA @ 264. Similar thinking to my AGK position: lower oil prices = good news for Richard.

Plus, methinx it may be breaking out.

Also, added MXG @ 462 - no fundamental reason other than because it broke out of its downtrend @ 451, and should retest its all-time high @ 501.

A Brand New Week

Missed out on the 4.3% drop in crude prices last nite. While I did think about shorting it @ 6634 levels, my experience with gold last week came to mind. I still need to recover $1000 to get back to parity. When I'm well ahead of that figure is when I'll get into the commodity futures markets next, and that too only on the long side.

Added LHG @ 329 and SMY @ 475 to my positions. LHG - since I believe Gold miners should recover soon; SMY (gapped open @ 470) since Nickel prices continue to rise and SMY managed to break through a key resistance @ 442. Target: 500.

Also bought AGK @ 1620. With oil prices coming down, that should provide an impetus on its uptrend towards 1700.

Closed out TLS @ 479 - profit of $150, so that nets out my earlier loss. Will look to re-enter TLS sometime, since she's going to 500.

The Housing Bubble

Lets recap:
1. Clearance rates and selling prices for the last 3 months have been fantastic
2. Rental vacancy rates have dropped
3. Rental yields have also dropped

The disconnect between #2 and #3 is important (in Economics 101, I was told that rentals (yields) should rise when availability drops).

This leads me to the following conclusions:
1. First-home buyers are being outbid by investors. I'd probably go further and say that investors/speculators are outbidding each other as well - and since they are using their other properties as collateral, this has all the makings of a nice, big bubble. If "housing" was traded on the stock market, the indicators would be yelling 'overbought'.

2. Renters are probably extending their leases, with a marginal increase in rent, and reducing their mobility - this explains why vacancy rates are low - and consequently, why yields are also low. My Woman and I live in inner-city Melbourne, and in January we extended our lease for another year and agreed to pay $10 a week more for rent, rather than look for another house and deal with real estate agents. Meanwhile, a house down the street sold for $525k, giving any buyer of our property a yield of only 2.7%. To generate a yield of 5% on that price, our rent will effectively have to double - and even in the inner-city, I don't see that happening without riots breaking out.

Would I like to own my house - sure! In fact, that's what this rigmarole with CFDs is all about. Would I like to own it at these prices, and pay 50% of my income in mortgage repayments? I'm not nuts.

When the music stops, I wonder who'll be left holding the parcel.....

Came across this commentary from AMP Capital. The main points it makes are:

1. Australian housing remains very overvalued:

• Average Australian house prices remain very high relative to average weekly wages and need to fall about 19% for the ratio to return to more normal levels.
• House prices need to fall about 29% to bring the ratio of house prices to rents (the PE ratio for housing) back to its long-term average (after adjusting for inflation).
• National average house prices remain well above their long term trend. Since the 1920s, Australian house prices have risen on average by 3% per annum after inflation, i.e. in line with real GDP growth. To revert to their long-term trend, average house prices still need to fall 19%.

2. Housing affordability remains too poor to support a strong and sustained rebound in house prices.

3. Despite rising rents, housing rental yields remain extremely low making them unattractive to investors. The average gross rental yield is just 3.2% for capital city houses and 4.3% for units.

So, will next month's expected rate rise be the straw that break's this camel's back?

The Role of Gold in my Life

The Economist has an interesting article about a study that debunks the notion of Gold as a hedge against inflation or as a safe haven in crisis. In a study from 1995 to 2005, Gold tended to behave like any other risk asset.

Being a Gen-X person, Gold, as a store of wealth, has little resonance with me. The use of Gold in jewelry, or as an element that has industrial uses is far more understandable. I've grown up in the post-Gold Standard era, one which has seen incredible credit expansion, and the creation of several pioneering asset classes. To me, backing a unit of credit against, say, land is more plausible than backing it to Gold. For starters, if I did issue credit against physical Gold, and the borrower defaulted, where would I go to convert the Gold into a more fungible currency that, say, the supermarket would accept? On the other hand, there is a ready market of people more than willing to exchange my land for currency.

Burnt!!

Got burnt in the jump in Gold. Up 1%, as soon as Iran announced the release of the prisoners. That's because it reacted to weaker US data instead.

As it turns out my stops were too wide, but they were still triggered - resulting in me losing 20% of my "playing" money.

I think a fundamental shift is afoot in the Gold market. Despite numerous columnists exhorting the cause for Gold, its prices and that of its miners languished in Q1 of this year - probably since the focus was on previous quarter earnings of other corporates. Now that the earnings season is over, the focus has shifted to the next quarter, and that probably doesn't look too good.

I was caught on the wrong foot due to hubris ("Gold will revert to $655")- the smart thing for me, in future Gold trades, is to remain on the long side. However, am wary at this point about the future moves in Gold - currently @ 673 lvls, and at the top end of the range for the last 2 months. However, have decided to go long on NCM, and have a buy order on LHG @ 329 to keep my battered hat in the ring (my OXR position is also booming along - up 8.68% in 2 days).

Last nite, I set premarket orders for ZFX (Buy @ 1508), BHP (Buy @ 3008), OXR (Buy @ 284).

Lesson #1:
Stocks in the ASX gap up. BHP jumped from y'day's close of 3006 to open at 3055. ZFX gapped from 1505 to open 1548. OXR gapped to open @ 288. Hence, you miss out on the major moves in the market - unless you are already in the market. BHP traded in a 3047-3061 range, ZFX in a 1519 to 1549 range.

Lesson #2:
A Buy Stop is different from a Buy Limit order. And the IGM system doesn't always give you that choice. I set my Buy orders as 'Buy Stop'- as a result, I got in at the first pricepoint of the morning. Which was certainly not what I wanted. I needed to have set a Buy Limit order - which does not execute my order unless my specified price is reached.

As a result, I've finished negative for the day in ZFX and barely ahead in BHP - and they're both virtually at my exit prices.

Lesson #3:
I need to get into (or out of) the market on the previous trading day. That's the only way I don't get burnt by the gap moves. Also explains why I did well on WPL today. I got in near the close yday.

So,I've written to IGM to put me on a Standard Account, from a Limited Risk Account - it hasn't worked for me, and I've just ended up paying lots of brokerage. They wrote back to say that I need to have $20K in the bank before I can move. Which, of course, I don't have.

Another go

Have shorted Crude @ 6488 (target 6300), Gold (Spot) @ 661.18 (target 655) and Gold (Forward) @ 667.35 (target 662).

Since I'm on 'Guaranteed' Stop-Loss with IGM, my entry price is net of their spread of $1/ contract.

Now, if the noises coming out of Tehran and London are anything to go by, I might just have a very "Good Friday" (and Wednesday and Thursday)..... :)

WPL

Shorted WPL @ 3923.I think the stock is probably long in the tooth at the moment. Oil should fall tonite, if Iran and UK make headway on the prisoners. Target 3665.

Reworking my exit strategies

Yesterday, I had the potential to make about $600 in profits. In the end I ended up with $90.

Gold fell early on in the piece - at one point, I was up $324 on my 2 mini contracts. Then, I failed to act in time, as the market turned sharply; and in the end I exited both positions with a $80 profit.

Then I went long the crude oil mini contract @ 6673; was up $324 again on this one. Thought - she's going to 6800; and she didn't. Had a stop at 6675 which got triggered as I slept - profit of $10.

While I continue to refine my conditions of entry, I seriously need to rethink my exit points as well. So far its been a bit of 'dartboard' and a bit of 'don't have a clue'.