November 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”.


November Market Analysis

During last months analysis, the general markets were still in a confirmed uptrend. That is not the case this month. The market entered into a correction on Thursday (Nov 17) after several days of institutional selling. With the negative outlook, I do not plan to increase the amount of capital “at risk” (i.e. in the market). All of my previous options have expired (as of today), leaving a little more than 50% of my account in the market.

November Technical Analysis for DRN

Here were my thoughts on DRN in October:

… DRN took 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…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.

November’s Chart:

DRN Price Chart through Novebmer 2011

The short-term uptrend was just that – short-term.  As of today, DRN sits just above the 50 day moving average (SMA).  However, DRN reached the high 50’s (resistance level mentioned in October) and then reversed course, appearing to establish a new, longer-term downtrend.  Since I am sitting on a position, in-the-money calls are the order of the day.  Extrapolating the current downtrend could have us testing the October lows by the end of the year.  On the positive side, a large move to the upside could break the downtrend.

November Technical Analysis for EDC

October’s commentary:

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.

November’s Chart:

EDC Price Chart through November 2011

With the 5-1 reverse split, the previous price levels need a bit of adjustment.  EDC the previous resistance level of $100 (formerly $20), but quickly retreated below that level.  Today, EDC is 20% below that level, with another 20% to go before testing the October lows at $60.  A good set-up for naked calls.

November Technical Analysis for TMF

October’s Commentary

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.

November’s Chart:

TMF Price Chart through November 2011

Soon after last months analysis, TMF reversed course and headed north, quickly reclaiming the 20 and 50 SMA levels.  The lows at the end of October established a longer term uptrend for TMF.  On a short-term basis, TMF could test the October highs by the end of the year.  Unlike the other ETF’s I use for this strategy, I may increase my position in TMF given its positive price trend.

November Technical Analysis for FAS

October’s Commentary

The chart…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.

November’s Chart:

FAS Price Chart through November 2011

FAS, like EDC, underwent a reverse split in October, so the price levels need a little adjustment.  FAS did test and then retreat from the July trendline.  It also broke below the 50 SMA, so the next level of support is around $40 (October lows).

November Technical Analysis for ERX

October’s Commentary

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.

November’s Chart:

ERX Price Chart through November 2011

ERX was unable to get past the $50 resistance mark and ERX sits just above the 50 SMA.  And that level seems to have established a new downtrend.  On a brighter note, ERX has a level of support at $40, which is substantially above the October lows.


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

One Response to November Technical Analysis – DRN, EDC, TMF, FAS, and ERX

  1. Pingback: November Technical Analysis – DRN, EDC … – Investing for Cashflow | Cash Flow

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