April 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”.

Enjoy!

April Market Analysis


While I’m not ready to quit my day job and start prognosticating the market’s next move, we finally did that correction I’ve been expecting.  How long and far we correct is anyone’s guess.  Regardless, now is not the time to load up on new positions, especially using leveraged instruments.  Given this downward bias, now IS the time to switch to in-the-money (ITM) calls if I do sell calls against existing positions.

April Technical Analysis for DRN


Here were my thoughts on DRN in March:

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).

April’s Chart:

DRN Price Volume Chart in April 2012

So far, so good. DRN found support from the December trendline, and seems to have broken the 57-65 range it was stuck in since February.  At the beginning of April, DRN tried and failed (on high trading volume no less!).  Hopefully, it meets with more success this month.

April Technical Analysis for EDC


March’s commentary:

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.

April’s Chart:

EDC Price Volume Chart for April 2012

I was right on one count; EDC was the stock to watch last month.  Unfortunately, I got to watch it fall.  My opinion that EDC had breached the May-August downtrend was not only premature, it was wrong.  Since reaching that level (around 120) EDC has steadily retreated.  The silver lining here is that there is no real support level above the low 60’s.  So the next support level will either be at 60 (making EDC range bound between 60 and 120!), or establish a new uptrend that can run back up to 120 before seeing any selling pressure (which is about 20% from this weekends price).

April Technical Analysis for ERX


March’s Commentary

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.

April’s Chart:

ERX Price Volume Chart for Paril 2012

The $60 price target was a much harder stop than I thought, and my call for a quiet month of sideways price action was wrong.  Instead, ERX tested and broke its new uptrend and is now searching for support.

April Technical Analysis for FAS


March’s Commentary

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.

April’s Chart:

FAS Price Volume Chart for April 2012

Easy come, easy go.  FAS filled in the March gap up pretty quickly.  The good news is that the November-March uptrend held fast.  The sideways price action was short-lived, but now FAS is sitting just above the November-March trendline.  Hopefully that means I’ll be reporting we found support and not another broken trendline next month.

April Technical Analysis for TMF


March’s Commentary

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).

April’s Chart:

TMF Price Volume Chart for April 2012TMF found support in the low 50’s and rebounded into the mid 60’s.  It appears that TMF is now range bound between the low 50’s (an upper limit stretching back to August 2010), and the mid 70’s.  As we move forward into May, TMF should be able to find support along the April-August trendline (low to mid 50’s).

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

8 Responses to April Technical Analysis – DRN, EDC, ERX, FAS, and TMF

  1. Pingback: April Technical Analysis – DRN, EDC, ERX, FAS, and TMF … | Cash Flow

  2. stockscooter says:

    TMF…support in low 50’s? Seems like it’s breaking up. You use a downward slanting trend line on other charts-If you use one here, you would have a break-out and up.
    What do you think of high yield bonds? I just commented on them on my blog, and I feel they are the one’s to watch.

    • T. Knight says:

      I agree…of the ETF’s I follow, TMF appears to have the most upside potential. If I use the closing highs from October 3 and Dec 19 to establish the downtrend, TMF is still has some work to do. From a correlation standpoint, TMF usually moves opposite of the general markets, so I could see a good short term play (1-2 months) for covered calls.

  3. stockscooter says:

    I used the Dec 19 high as the start of my trend line, because I view it as a truncated, orthodox high. Using that, we have already broken upward. We could fall back under it pretty easily with a gap down open, so I’m not making a big deal out of this upward break-out. I’m waiting until I see the whites of their eyes before I shoot, because it should be a significant move.
    BTW, I like your blog – Good content.

  4. stockscooter says:

    I really should have added this additional thought. It seems the U.S. Dollar is poised for a breakdown, imminently,. That would be cause to push rates upward and bond prices down. If a U.S. dollar correction is associated with another soverign down-grade, this would become very volatile to the upside for interest rates.

  5. Pingback: May Option Investing – DRN and FAS Covered Calls « Investing for Cashflow

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