Day Trader column for July 30 – 2013

A clear close above 5,000 on the All Ords and S&P/ASX 200 last week helps convince me the next move up to 5,200 is on its way. What it does after that is something I am not prepared to speculate on at the moment. The main reason for my unease is that so many stocks from right across the price range will move to break recent highs as the index moves to 5,200. This will mean the fifth leg of a five point reversal is in then in place and a reversal can then occur at any time. This could be very soon after the new high is made or it could be after a strong move up.

The higher the move before the reversal the bigger the following fall is likely to be. I will therefore be watching closely for reversals as I will then looking to go short.

Shorting as I mentioned a couple of weeks ago is something I will discuss in a future column as the market runs out of puff.

Before I get back to the discussion on Mini’s, there were three stocks I bought last week.

The first was Dyesol (DYE) which I traded some time back. It has spent the last two months consolidating under fifty cents. Three weeks ago it ran up to just below fifty cents from a low of 27.5 cents then had a slow six day pull back to 40 cents on very low volume. (in this context volume, is relative to recent trading volume). It formed a daily pivot point buy signal on July 22 and I bought 20,000 shares at 44.5 cents the next day for a total of $8,920. The initial stop was 40.5 cents since raised to 46 cents. I will look to take profits around the next target price of 90 cents.

On July 26 I bought two more stocks. The first was 5,000 Finbar Group (FRI) at $1.44 for a total of $7,220. The initial stop is $1.355 and the target is $1.70, the May 2013 all time high.

Finally I bought 5,000 Thorn Group (TGA) another stock I traded recently. The increased volume on Tuesday and the close at $2.10 on Thursday was the buy signal. I paid $2.10 for a total of $10,530. The initial stop is $2.04 and the targets are $2.40 then $2.90.

Now back to the Minis. I mentioned last week how it is possible to vary the leverage taken on. In the case of a long position (remember I am talking about GSL or guaranteed stop loss minis) the further the strike price and hence the stop price is below the current price, the less leverage. Because the stop is automatically triggered if the underlying stock price moves down and trades at the stop price, you will be sold out. You have no say in it. . This means if buying a mini with the strike price close to the money (ie current share price) you will not only have more leverage but also a greater risk of being stopped out. Again, a compromise between risk and reward.

More next week.

Past columns and information and DVD’s on my methods, are available at:- www.thedaytrader.com.au

Portfolio Position

Stock

No. of Shares

Purchase price

Stop

Fridays Close

IFM

10,000

58 c

53 c

56 c

ALL

2,000

$4.34

$4.23

$4.25

CBALOH

1,000

$4.30

$6.95

WBCLOD

2,000

$1.30

$2.80

DYE

20,000

44.5 c

46 c

50 c

FRI

5,000

$1.44

$1.35

$1.43

TGA

5,000

$2.10

$2.04

$2.17

Cash $242,936

Shares $54,650

Total $297,586