October Technical Analysis – DRN, EDC, TMF, FAS, and ERX

For those of you visiting for the first time, I use technical analysis to help 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 my commentary.

As I say in my monthly cashflow report, every investor and trader should review their trades on a regular basis, and this effort helps me improve my ability to “read the tape”.


P.S. This month, I decided to use one post for all the analysis. Let me know if you like it this way, or if individual posts are better. Thanks!

October Technical Analysis for DRN

Here are my thoughts on DRN in September:

I assumed DRN would break through the $55 or the $36 floor “soon”. The catalyst for either move being Fed action/inaction. We didn’t pierced the $36 floor last week. Unfortunately, I don’t see much support above the $30 level. We’ll have to wait and see what Monday/Tuesday have in store for us.

October’s Chart:

Price Chart for DRN through October 2011

You can see in the chart that DRN did take out the August low of $36 and found support near $30 per share at the beginning of October. Since then, DRN rose 50% (!), retaking the 50 day moving average on Friday.

DRN is showing strength in the short-term (by retaking the 20 SMA and breaking the trendline) and mid-term (by retaking the 50 SMA). The next point of price resistance looks to be the high $50’s. With the markets in an uptrend (per IBD), I will execute November covered calls using DRN for October cashflow.

October Technical Analysis for EDC

September’s commentary:

As of last weekend, EDC was still in a long-term downtrend, but looked like it had found short-term support around ~20.00. The next price support is around $5.00 (!), which was set back in early 2010. We’ll have to wait and see what Monday/Tuesday have in store for us. Hopefully, we won’t see a reverse split anytime soon.

October’s Chart:

EDC Price Chart through October 2011

EDC couldn’t find it’s footing at the $20 level, but didn’t sink to $5 either. The short-term trend looks good, and the downtrend line was broken, but we’re still looking for EDC to retake the 50 SMA. $20 is the new resistance level, but November calls look to be a good play for EDC since the general markets are in an uptrend. That said, Europe is still a wild card, so I will keep my position small.

October Technical Analysis for TMF

There was no technical analysis for TMF last month. The last time I traded TMF (July 2011), it was range-bound between $35 and $40. After my calls expired in mid-August, TMF was trading in the 50’s. I was waiting for the price to establish some sort of trend (other than straight up). That support was established in the beginning of September. I missed that signal, and then decided not to trade in September. The rest is history.

October’s Chart:

TMF Price Chart through October 2011

Earlier in the month, TMF took out short-term support (20 SMA) as it came back from a high of $80 per share. On Friday, TMF broke mid-term support of the 50 day moving average. With the 200 SMA around $40 and the next level of price support at that same $50 mark, I will not increase my TMF position for October cashflow using November calls at this time.

October Technical Analysis for FAS

I also did not have any technical analysis for FAS last month. A few months ago, I used FAS as a way to generate the few hundred dollars in cashflow I needed to reach a monthly goal. Unfortunately, FAS was and still is in a LONG downtrend, and I decided that continuing to trade it was a bad idea. Once my shares were exercised, I did not buy back in.

October’s Chart:

FAS Price Chart through October 2011

The chart above shows short and mid-term strength (FAS retook the 20 and 50 SMA), but still hasn’t broken the July trendline. We may see the July trendline become the next level of resistance (and then the $15 price level), so November covered calls could be a good cashflow play.

October Technical Analysis for ERX

ERX is an ETF that I’ve used in the past for this type of covered call strategy. With the amount of volatility in the markets, I decided that it would be good to start incorporating ERX into the mix for correlation purposes. I don’t track the beta/alpha of my holdings, but as I increase the size of my portfolio, I will need to add new assets to the mix. Better to start now, while things are still ramping up.

October’s Chart:

ERX Price Chart through October 2011

ERX has followed a similar pattern to DRN, with the difference being resistance prices. ERX could run into selling pressure around $50, while DRN’s resistance is closer to $60, even though both are currently trading at $47 and change.

ERX also broke its downtrend trendline earlier than the other ETFs, so it may serve as a bellwether for short-term direction of the markets when it gets to $50. I will check out the option premiums tomorrow and decided whether to place a buy/write on this one.


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

5 Responses to October Technical Analysis – DRN, EDC, TMF, FAS, and ERX

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