Investing for Cashflow – October Technical Analysis

For those of you visiting for the first time, I use basic technical analysis to make trading decisions related to a covered call strategy. Each month after options expire, I review price and market action since the previous option expiration date, as well as any commentary from the previous month’s analysis.

Every investor and trader should review their trades on a regular basis, and this effort helps me improve my ability to “read the tape”.

Enjoy!

October Discussion – General Stock Market


The general market ran into institutional selling this month, due to weak earnings reports, and entered a correction.  But the U.S. Federal Reserve has stated it will do what it takes to keep the economy limping along.  We’ll have to see what kind of support that provides the financial markets.

October Technical Analysis for DRN


Here were my thoughts on DRN in September:

I was a bit premature on my call of DRN breaking its uptrend in August.  It rode the uptrend higher, and only broke down during the past few trading sessions.  The Sept-Dec-June trendline sits at $70 right now, so DRN needs to come down and test that area before I’ll trade covered calls.

October’s Chart:

Price Chart for DRN with Trendlines

DRN was still working its way down to the Sept-Dec-June uptrend when options expired on the 19th.  As of the 26th, DRN failed to find support and broke the uptrend, giving us a new, short-term downtrend.  All we can do with DRN is watch and wait (red light).

October Technical Analysis for EDC


September’s commentary:

I’ve been hesitant on EDC because it has been so much higher than its support levels.  In late August it did retreat from the May-June trendline, but has since broken that resistance level and headed higher.  With support in the 70’s, EDC is trading at least 20% higher, so now is not the time to enter covered calls.

October’s Chart:

Price Chart for EDC with Trendlines

EDC traded sideways in October, staying between the high 80’s and low 90’s.  It appears that there is a new short term uptrend (June to September), and EDC’s price is only 5% above that mark.  A new uptrend would move the the May-June trendine to a mid to long-term uptrend (still in the mid-70’s), which seems to be a better fit given the uptrend’s small slope.  This new development makes EDC a green light for October, which is an improvement from September’s yellow light status.

October Technical Analysis for ERX


September’s Commentary

ERX broke the April-July trendline I mentioned last month, but quickly retreated.  Coincidentally, EDC hit the $60 ceiling, so it is still rangebound.  Right now, it’s about 10% over the support level, which isn’t too bad.  I’d like to see it get a little closer to the short term uptrend before entering a position, but ERX looks like the best play this month.

October’s Chart:

Price Chart for ERX with Trendlines

ERX did  fall back to June-September uptrend and found support for a few days.  Unfortunately, that support didn’t last long; ERX broke the uptrend and forced me to sell.  There was a brief rally back to that same uptrend, which has now become a new level of resistance.  As with DRN, we can only watch ERX for the time being and wait for some new trends to emerge (red light).

October Technical Analysis for FAS


September’s Commentary

FAS continued to march higher since the last technical analysis.  Within the last few trading days, a resistance level from last summer knocked FAS back down.  But with all the QE and ECB talk these days, it is hard to bet against the financial sector.  Still, as with the other ETFs, I would like to see FAS head back to 100 before entering a position.

October’s Chart:

Price Chart for FAS with Trendlines

The price of FAS is within a few percent of the short term uptrend, so we’ve entered buy territory.  But be careful – the mid-term uptrend is down in the mid-80’s, so a steep sell off could occur if we break the short term trendline.  Keep your sell signals at the ready if you do decide to enter a position.

October Technical Analysis for TMF


September’s Commentary

TMF found some support at the Jul’11-Apr’12 uptrend, but we’ll have to see if it has the strength the break the short-term downtrend.  It could be a good play for September, as it is less than 10% from a major support line. I’m going to place TMF in the red light category, as the short-term trend is still downward.  But there is an opportunity for a short term option play if you keep your money management rules tight.

October’s Chart:

Price Chart for TMF with Trendlines

TMF did break the short-term downtrend I mentioned last month (July-September), but prices were unable to make much headway.  Instead, TMF spent most of the month between $70-$75 per share.  Since the downtrend in broken, I tend to be more bullish on this ETF, but I also want to see it find support from the Jul’11-Apr’12 uptrend.

Summary


Green Light (Uptrend):  EDC. FAS

Yellow Light (No Trend, Range Bound, or Extended from Trendline) : EDC, TMF

Red Light (Downtrend or Broken Trendline): DRN, ERX

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About T. Knight
Blogging about my journey to financial independence via investing for cashflow.

One Response to Investing for Cashflow – October Technical Analysis

  1. Bruce says:

    The two most important requirements for major success are: first, being in the right place at the right time, and second, doing something about it. Ray Kroc (1902 – 1984)

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