Not ideal
I generally look to run a hedged book with a long bias so I'll usually take a couple of longs and a couple of shorts each day with the long positions bigger than the shorts. My logic is that over time the market will tend to rise a little even if it's only the effect of dividends. Also, my preferred shorts are not always available as they're often stocks in long term downtrends so that I'm often taking my third or fourth favourite short rather than what I consider to be the best.
The financial year ended on Friday for those of us in Australia and this week was a wild ride, continuing a month of volatility with the ASX 200 index having moved a net 2 points over the month but with 5 quite sharp swings culminating in a fall of almost 97 points or 1.66%.
Because it was such a weak day virtually all stocks fell and the longs I took were something of a stretch. One is unquestionably strong and the other is strong in the short term. They both fell on the day which I don't necessarily like as a set up because a correction can often go for a few days and my aim is to hit the sweet spot as a stock is just starting a move.
The first long position was in Bluescope Steel, ticker code BSL.
The stock has resumed its run after a fairly shallow correction from mid March to late May. There was a new high this week, on Thursday, and Friday's pullback was minor given the market context.
The second long position was in OZ minerals or OZL.
Nowhere near as strong a stock as BSL but seems to be trying to rally again after a 5 wave move from early May and a retracement of that into mid June followed by some real strength this week. Again Friday was a decent outperformance compared to the broader market.
The theme that I've been working with is that the world's central banks are making a concerted effort to talk up rates and having some success with their jawboning so that the inflation trade is the short term beneficiary. That suits both BSL and OZL and has also led to some selling in high yielding stocks and gold.
Which leads me to my two short positions.
The first one is in G8 education, GEM. They run child care centres and pay quarterly dividends. It's a very good yield, close to 7% and fully franked but they also have debt and pay out a high percentage of earnings so they're vulnerable to rate rises.
Here's the chart.
There was quite a decent rally leading up to the dividend. I'm anticipating that Thursday marked a lower high and Friday's action confirmed a swing lower.
The second short position was in gold producer Newcrest.
This stock tried to rally through May and early June but ended up with a weak three wave correction where the second rally attempt fell short of the first. Since then it has been chopping down but the fall seems to be gathering momentum.
The financial year ended on Friday for those of us in Australia and this week was a wild ride, continuing a month of volatility with the ASX 200 index having moved a net 2 points over the month but with 5 quite sharp swings culminating in a fall of almost 97 points or 1.66%.
Because it was such a weak day virtually all stocks fell and the longs I took were something of a stretch. One is unquestionably strong and the other is strong in the short term. They both fell on the day which I don't necessarily like as a set up because a correction can often go for a few days and my aim is to hit the sweet spot as a stock is just starting a move.
The first long position was in Bluescope Steel, ticker code BSL.
The second long position was in OZ minerals or OZL.
The theme that I've been working with is that the world's central banks are making a concerted effort to talk up rates and having some success with their jawboning so that the inflation trade is the short term beneficiary. That suits both BSL and OZL and has also led to some selling in high yielding stocks and gold.
Which leads me to my two short positions.
The first one is in G8 education, GEM. They run child care centres and pay quarterly dividends. It's a very good yield, close to 7% and fully franked but they also have debt and pay out a high percentage of earnings so they're vulnerable to rate rises.
Here's the chart.
The second short position was in gold producer Newcrest.
This stock tried to rally through May and early June but ended up with a weak three wave correction where the second rally attempt fell short of the first. Since then it has been chopping down but the fall seems to be gathering momentum.
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