daytrade diaries... october 27

Morning traders.

Market wrap: A retreat in resource prices and U.S. financial stocks point to another weak start for the Australian stock market today.

Wall Street opened in positive territory but fell off a cliff after the first hour of trade and wallowed for the rest of the session. The Dow, up around 100 points in early trade, closed 104 points or 1.05% lower. The S&P 500 lost 1.17% and the Nasdaq was the pick of the bunch for a second straight session, down 0.59%.

A bounce in the US dollar caused a sell-off in oil, gold and some other metals. Also hurting sentiment was a squabble between Bank of America and the government over repaying federal bailout funds and worries over whether Congress will extend a tax credit for first-time home buyers. But traders say the market's decline reflects growing concern about a rally that has lasted seven months.

"The action today is very impulsive and that has added a little more credence to the fear there could be a larger correction in equity markets coming," said a director of technical research quoted on MarketWatch.

Financial and resources stocks bore the brunt of the U.S. selling. The banking sector was down 4%, gold/silver miners 3.84%, natural gas 1.8% and oilers 1.46%. Tech shares were a safe haven and REITs lost just 0.32%.

European markets were dragged down by the fall on Wall Street after trading in positive territory for most of the session. Britain's FTSE lost 0.97% and Germany's DAX 1.71%.

Oil futures were crunched by the US dollar's bounce off a 14-month low against the euro and lingering over-supply worries. Crude futures were recently more than 2.2% lower at $78.59. Gold dropped out of its recent trading range. The spot price was recently at $1038.10, down more than $15 on yesterday.

Copper hit a 13-moth peak on data showing healthy imports of the metal into China but lost ground as the session advanced. In London, copper closed 1.64% lower, lead lost 3.39%, nickel 1.85% and tin 0.63%. Zinc, which jumped more than 10 per cent last week, was supported by an outage at the Century zinc mine, rising 0.7%. Aluminium inched 0.56% higher.

Futures traders expect our market to open well in the red. The SPI futures index closed 40 points lower at 4800.

TRADING THEMES TODAY

REDUCE HOLDINGS? I'm by no means a doom and gloomer but this market is looking increasingly jumpy. A correction is long overdue. Doesn't have to be deep or long but a short pullback would be healthy. Last night's US action again had a whiff of "looming correction" about it. I'm increasingly cautious.

BOUNCE TRADES: When rallies end and the easy money has been made, it's possible to keep an income flowing by scalping bounces as share prices pull back. These requires patience (wait until the price falls to a support level) and discipline (always have an exit plan - if the support breaks, get out). BTA and GXY have delivered good bounce profits recently. I got into ABY yesterday as a similar set-up (at least a day too soon).

ECONOMIC NEWS: There are quarterly business confidence figures due at 11.30 am today. Tonight in the US: consumer confidence, August house prices, regional manufacturing data and a speech by Treasury Secretary Tim Geithner.

Good luck to all.