daytrade diaries... september 2

Morning traders. Tin hats on.

Market wrap: Australian stocks are set to open deep in the red after Wall Street welcomed September with its heaviest fall in two months.

European and US markets lost around 2% overnight and dragged commodity prices down as fears of the long-awaited correction overcame positive economic data in the US. Stocks in the US advanced in early trade after the monthly manufacturing index hit its highest level in two years and a measure of future home sales came in stronger than expected. But the rally turned into a rout after mixed construction figures combined with bearish analyst comments to send skittish investors running for the exits.

The Dow lost 186 points or 1.96%. The S&P 500 dipped 2.21% to close under the 1000-point mark at 998 and the Nasdaq gave up 2%. Financials bore the brunt of the selling as short-sellers bet that the long rally in the sector is overdone. The S&P Bank Index thumped 5.19% lower. Also hammered: REITs down 5.27% and airlines -5.03%. Miners and oilers were also down but not as heavily.

Crude oil futures tracked US equities, giving up early gains to finish down 2.7% at $68.25, a two-week low. Gold benefitted from a switch out of equities, adding $6 to trade at $956.80. Base metals were hit hard as fears about the health of the Chinese economy compounded the slump in equities. Aluminium and nickel hit one-month lows.

Futures traders expect a big red day on the local market. With 30 minutes left to trade, the SPI futures index was down 75 points at 4446.

TRADING THEMES TODAY

GDP: Our market shrugged off worrying trade figures yesterday but it may not be as sanguine if today's GDP figures come in well below expectations. Analysts were expecting second-quarter growth of 0.6% after Q1's 0.4% rise but the rising trade deficit suggests the figure could come in much closer to zero. The figures are released at 11.30 am - financial stocks will react first.

BOUNCE TRADES: Panic = opportunity. There will be some heavy dumps in the first hour of trade. There's money to be made in buying oversold shares at support levels but you have to pick candidates carefully. By the time the market opens, I'll have a short list of shares that may hit support levels if the selling is heavy enough - then it's a matter of picking off those that reach the buy zone and waiting for recovery. Tight stops - if the support fails, get out.

STAND ASIDE: This will be a dangerous day to trade. If you don't need to trade or don't have a strategy for these conditions, it's safer to sit it out. Sometimes the best investment is in watching how shares move over the course of the day and thinking about how you can turn that knowledge into trading ideas for next time.

Good luck to all.