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

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”.


March Market Analysis

We had a bit of a hiccup at the beginning of March, but the markets bounced back well.  The NYSE is up ~16% since the follow through day in mid-December, but also has a count of 6 distribution days (the S&P500 has 4 and the NASDAQ has 3 as of Friday).  All in all, it appears to be a time of quiet consolidation for the markets, as the distribution days have been spread out and the technical “damage” limited.

Remember…don’t fight the market.  I think we’re way overdue for a correction, but I trade based on market action.

March Technical Analysis for DRN

Here were my thoughts on DRN in February:

DRN powered through the mid-50’s resistance level, so that now becomes the new support level as DRN continues its climb. We did see DRN touch the mid-60’s, were it met resistance as expected (price low’s from April and June 2011). These support and resistance levels ($65 and $57 respectively) create a pretty narrow range, so we could see some sideways price movement over the next month as the markets work to consolidate their gains. For now, the current uptrend remains intact, but as with the markets, DRN’s falling trading volume is cause for concern.

March’s Chart:

DRN Price and Volume Chart

DRN stayed in the range mentioned last month ($65 and $57), but seemed to find its footing last week at $57.  Hopefully, this was confirmation of December-March uptrend (I was a bit premature on the trend last month).  Technically speaking, there is nothing stopping DRN from reaching a 52 week high in the low 80’s (~20% gain).

March Technical Analysis for EDC

February’s commentary:

EDC passed the next test (Sept-Nov downtrend) and then some. As of this post, EDC sits just below 120, which has been a sticking point since August 2011. 3 attempts to break out, 3 retreats. Going forward, a sustained short-term uptrend and less price volatility (more constructive price action) indicate increased buying pressure. On the other side, a huge obstacle exists in the form of the April-July downtrend. The good news is that EDC should confirm its direction this month, and is the stock to watch (or trade). I have my fingers crossed for a move higher, as the next level of resistance is in the 160’s (another 30% increase).

March’s Chart:

 EDC Price and Volume Chart for March 2012

On the surface, it seemed like a pretty tame month.  EDC closed at $113.45 at the last option expiration;  today it’s at $113.17.  But between those two points, we saw more than a 20% price swing.  I was surprised that my program didn’t signal a volatility stop two weeks ago, but that’s another story.   The $120 price level remained a sticking point for EDC over the last four weeks.  If I had to guess, we haven’t shaken out all the people holding shares since last March, and I may have been a bit too early on my call for confirmation last month.  So EDC is still a stock to watch in March and April.

March Technical Analysis for ERX

February’s Commentary

It took most of the month, but ERX finally reached the mid-50’s. Hopefully, the short-term uptrend will continue, with the mid-50’s become a new support level and ERX challenging the next resistance level in the low 60’s. A long term downtrend (May to July 2011) still exists, but ERX is still 20%-25% below that level.

March’s Chart:

ERX Price and Volume Chart for March 2012

ERX hit that next level of resistance (low 60’s), and fell back to the mid 50’s.  Actually, ERX has been a pretty good covered call play; the volatility is high enough for good premiums, without causing the underlying capital gains to fluctuate wildly.  I could see March/April being fairly flat for ERX (in terms of price action), as we move towards the October-December trendline.

March Technical Analysis for FAS

February’s Commentary

$110 here we come! Looking really long term, the April 2010 – February 2011 downtrend is at ~150, so there is some room to run this year.

March’s Chart:

FAS Price and Volume Chart for March 2012

I made a good call last month…we’re just off 110.  But seriously…last week was quite a surprise.  I expected to be around the high-90’s, and telling you to expect more upward price movement.  Instead, we’ll probably see some sideways action as we process last weeks massive price gains and look for more support from the now confirmed November-March uptrend.

March Technical Analysis for TMF

February’s Commentary

TMF’s downturn appears to have accelerated, indicated by the “lower high’s” (~75 in December, ~72 then ~70 in January, and ~66 in Feb). TMF also spent a majority of February below it’s 50 day / 10 week moving average. Zooming out to a 2 year timeframe, the next level of support is the low 50’s!

March’s Chart:

TMF Price and Volume Chart for March 2012

Well, it took a bit longer than I anticipated, but TMF finally rolled over last week, and is approaching the next level of support (low-50’s, which are a convergence of the April-August long-term uptrend and a former level of resistance that is now switched to support).

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

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

  1. Pingback: March Option Investing – Covered Calls « Investing for Cashflow

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