ASX Stock Pairs Trade Journal

[skc]

Charts for the day.

Trade #10 SEK/CRZ. Seek and Carsales are really two departments of the old newspaper "rivers of gold" and this pair had good correlation and has been a good performer. CRZ is getting close to all-time high at $5.87, seemingly unaffected by the recent correction, while SEK is off 15% since May but sitting on a decent support ~$6.4. Both companies trade on similar PE multiple. Full mean reversion ~9% but anything above 6% will do.

Trade closed. Sold SEK @ $6.29. Covered CRZ @ $5.98. P&L = -7.5%.

Had a mental stop for SEK @ $6.3 - it broke down and reached backup there offering a close. Didn't pay enough attention to the CRZ dip this morning or could have got better prices.

 

[notting]

Big Spread L AGO 1.97 S FMG 4.91

 

[skc]

End of week 3. 14 closed trades, 3 open. P&L = +3.6%. I've included in the P&L a "approximate funding charge" which calculates the CFD funding cost for the closed positions using a 4% spread. It is a small amount for each individual trade but over many trades they do add up. Overall performance has been as good as can be expected, but it wouldn't surprise me (it would frustrate me, however) if the trading goes flat for the next 50 trades.



3 exits today all pretty mediocre, especially SEK/CRZ. Due to the staggered open of the ASX, I found that there is actually slight advantage to trade shares in the same opening group. There's a good 7 minutes between the open of CRZ and SEK, and we know that indicative opening prices can change a lot especially on a day like today. I wasn't able to capitalise on the opening 2 minute CRZ spike down, because I didn't want to bear carrying a naked SEK long.

Big Spread L AGO 1.97 S FMG 4.91

This used to be a good pair but FMG/AGO has been one way traffic for a long time. But as you said the spread is wide enough for a quick scalp.

 

[skc]

Long IOF short CQR - Office REIT vs Retail REIT, both going ex-div for ~3.5% with IOF giving a special dividend. Not the best entry on either leg. Had $2.65 / $3.5 and hessitated to pull the trigger on both counts. IOF is 5% off year high while CQR is setting new 52wk highs. With all the retail doom and gloom, CQR (and other retail REITs) are surprisingly resilient. Although the market is asking 7.5% yield from them, as opposed to office and industrial REITs which yield closer to 5-6.5%. Profit target ~4.5%. Will hold this pass ex-div date (25/6) if need be.

Closed the IOF long @ $2.65. CQR is not shaking off the 13c dividend for some reason but it will probably happen later in the day. Waiting for a fill around the low $3.30 mark. Actually shorted a handful @ $3.4 for a quick "someone forgot it's ex-div" directional trade.

 

[skc]

Closed the IOF long @ $2.65. CQR is not shaking off the 13c dividend for some reason but it will probably happen later in the day. Waiting for a fill around the low $3.30 mark. Actually shorted a handful @ $3.4 for a quick "someone forgot it's ex-div" directional trade.

Covered CQR short @ $3.31. P&L = 3.86%.

 

[skc]

EOD

15 closed trade + 2 open trades at small loss. There aren't many signals I like at the moment. I took >60 trades in May but only ~20 trades in June. I guess it averages out to the usually 30-40 trades per month. The dividend season means most REIT and infrastructure stocks are not traded... at the same time I've pretty much stopped trading media and retail stocks.

 

[nulla nulla]

Closed the IOF long @ $2.65. CQR is not shaking off the 13c dividend for some reason but it will probably happen later in the day. Waiting for a fill around the low $3.30 mark. Actually shorted a handful @ $3.4 for a quick "someone forgot it's ex-div" directional trade.

You did well to close a long at $2.65 in IOF at open today. I believe I was sitting at the front of the sell queue at $2.65 and my parcel was only barely touched getting 994 shares away. You must have lodged your sell at a lower price and cut in front. Curse you Mind you with the div/special div combo of $0.097c I can afford to wait.

 

[skc]

You did well to close a long at $2.65 in IOF at open today. I believe I was sitting at the front of the sell queue at $2.65 and my parcel was only barely touched getting 994 shares away. You must have lodged your sell at a lower price and cut in front. Curse you Mind you with the div/special div combo of $0.097c I can afford to wait.

Lol. I placed my order at $2.64 almost an hour before open so you can't blame me for cutting in last second. On hindsight I should have sold AND reverse for a quick trade...

Playing the open is a great game - plenty of opportunities to make or lose money.

 

[skc]

Trade #14 TSE/UGL. Both companies are in the mining services space although they both have more steady, less exciting infrastructure services arms. UGL has bounced nicely off a recent low and is now sitting around 62% retracement level - so a potential holding area. TSE is in a hard downtrend and has been hitting new lows despite ongoing share buyback. If the market holds up, however, a retest of $1.94 (and potential $2) The ratio chart doesn't show a lot of crossing of the MA, but the divergence is substantial enough to warrant a trade.

Full convergence is over 10%, but I will only aim for half. I also won't hesitate cutting the pair if TSE can't hold its recent low.

Trade #14 Closed. Sold TSE @ $1.76, covered UGL @ $12.18. P&L = -1.8%.

TSE has been a weak stock and I don't like going long a weak stock against a realtively steady stock like UGL... as I said if TSE falls below recent lows (which was $1.81 at time of entry) then I'd cut this trade. It has gone well below that and the recent small bounce gives me a good enough reason to take the trade off.

 

[skc]

Trade #18 opened. Long BLY @ $2.835. Short ASL @ $3.275. Size 10%.

 

[skc]

Trade #18. Long BLY / Short ASL. These two companies are basically in the same drilling business, BLY however tends to experience larger movements. BLY is sitting at $2.80 support, while ASL is ranging between $3 to $3.40. Full mean reversion ~7%, profit target is a good portion of that.



Trade #19. Long GPT / Short WRT. Two REITs that didn't go ex-div on Monday. Took me a while to work the entries and got $3.225 / $2.84. This is the 3rd time I've shorted WRT and usually this means I should stop doing it soon (i.e. it's going up for a reason unknown to me). Profit target is ~3.5%.

 

[skc]

EOD



16 closed trades. 3 open trades basically at breakeven.

Looking at the open P&L it's obvious to see that the shorts have made a lot more money than the longs. That's the sort of market we are in I suppose. Commission is running at ~15% of P&L which is very good - it could average up to 20-23% over time.

 

[notting]

. This is the 3rd time I've shorted WRT and usually this means I should stop doing it soon (i.e. it's going up for a reason unknown to me).5[/ATTACH]

My suspicion is that people are looking for reliable dividend in a large blue chip with fairly reliable earnings contracted for the short to medium term even if things go nuts and hence are heading in to this one.
It's only fully dependent on old world retail, nothing to be concerned about there! Short away, I say and have started to.

 

[skc]

Trade #20 Long GWA @ $1.995. Short ABC @ $3.11. Size 10%.

My suspicion is that people are looking for reliable dividend in a large blue chip with fairly reliable earnings contracted for the short to medium term even if things go nuts and hence are heading in to this one.
It's only fully dependent on old world retail, nothing to be concerned about there! Short away, I say and have started to.

That may be right to some extent as most REITs are close to 52wk high... and there'a probably a slight premium being put on the Westfield brand...

 

[skc]

Trade #21 opened. Long SUN @ $7.89. Short IAG @ $3.49. Size 15%.

 

[skc]

Long GWA/Short ABC - Not the perfect match in terms of activities but has performed well in the past as a pairs trade. GWA is a housing products supplier while ABC is in cement, concrete and masonry which have wider applications. The housing market is down and new builts are falling and that is reflected in GWA's share price. GWA provided a trading update in early April forecasting a profit fall, but maintaining a dividend at ~9% which should provide some support for the share price. The takeover of ALS (basically in the same game as GWA) has generated some interest in GWA as well.

On the GWA chart, recent lows need to hold to mount a challenge towards $2.1. The ABC chart is looking strong but resistance ahead at $3.20. This will be a cautious position and breach of these levels will see the trade closed pretty quickly. Profit target ~4-5%.



Long SUN/Short IAG - IAG put on 8% in 3 days with SUN moving ~2.5%. Profit target ~4%.



EOD



Not a lot going on except didn't expect BLY to be so weak on a day where many mining services enjoyed small bounces. But the trade is still young.

 

[notting]

Got slammed on BLD long! Profit downgrade on building. Two of em in a couple of months can be catastrophic. Took a loss which could have been on the fact! Meaning it will now recover but not prepaired to be on it in this environment. Increased the short on JBH in the hope of making something back now that it's ex on big dividend.

Thinking that this pair may be a bit disfunctional given JHX has a tendency to move with stronger home building market in the US and weaker AU agains US $$. Whilst Boral moves with local AU home building market sentiment.
Just my thoughts, don't know them intimatly feel free to dissagree.:frown:

 

[skc]

Got slammed on BLD long! Profit downgrade on building. Two of em in a couple of months can be catastrophic. Took a loss which could have been on the fact! Meaning it will now recover but not prepaired to be on it in this environment. Increased the short on JBH in the hope of making something back now that it's ex on big dividend.

Thinking that this pair may be a bit disfunctional given JHX has a tendency to move with stronger home building market in the US and weaker AU agains US $$. Whilst Boral moves with local AU home building market sentiment.
Just my thoughts, don't know them intimatly feel free to dissagree.:frown:

I did say this pair is cursed for me so I have been avoiding it like a plague. BLD is weak for a reason, but JHX has been irrationally strong. It shaked off the dividend like nothing happened. Personally I think JHX is a fundamental short, but I've rarely put on a fundamental short position. JHX / ABC makes a good pair though.

I know nothing about your risk management approach to your pairs but make sure you have something...

 

[notting]

BKN and BLD might also be smarter?
Have been building a short on ABC too against BKN/BLD not going too well!!, right now.
It's really hard to see them JHX&ABC going too much further even if the market goes up, their playing like defensives, which their not!
Merkels comments seemed pretty amazing, perhaps that will help create a tank like never seen before, although Club Med Euro are getting good a pulling rabbits out of the other 'hat not labeled Euro bonds.'

Market still seems to be waiting for something special given it hasn't collapsed after her - 'drop your expectations' declaration.

 

[skc]

Trade #22 Long IOF @ $2.685. Short GMG @ $3.745. Size 15%.

Pretty amazing all REIT's have recovered their div so quickly...

BKN and BLD might also be smarter?
Have been building a short on ABC too against BKN/BLD not going too well!!, right now.
It's really hard to see them JHX&ABC going too much further even if the market goes up, their playing like defensives, which their not!
Merkels comments seemed pretty amazing, perhaps that will help create a tank like never seen before, although Club Med Euro are getting good a pulling rabbits out of the other 'hat not labeled Euro bonds.'

Market still seems to be waiting for something special given it hasn't collapsed after her - 'drop your expectations' declaration.

BKN is oversold from my 2-minute fundamental analysis, while BLD is still overvalued. I wouldn't long BLD anytime soon because of cap raising risk (see my rant on the BLD thread).