Investing for Cashflow – July 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!

July Discussion – General Stock Market


The general market has not made a lot of headway since the last review.  IBD gave us the green light, with a confirmed uptrend around 7,670 on the NYSE.  Since then, we’ve had one correction, 2 rally follow-throughs, and 3 uptrends underpressure.  And for all that noise, we’re right back where we started.

 

2012-07-22 - Price Convergence - NYSE

Looking at the major trendlines for the NYSE, we have April’s downtrend meeting up with Junes uptrend, which means we should get confirmation of one of the trends (unless we move sideways, and cancel out both of them).

July Technical Analysis for DRN


Here were my thoughts on DRN in June:

DRN found support just below $60 at a former resistance level.  There appears to be a bearish “symmetrical triangle” pattern governing the price action between the July ’11-May12 downtrend and the Oct ’11 Dec ’11 uptrend.  Contrary to the confirmed uptrend in the general markets, DRN has not generated a buy signal for me.

July’s Chart:

Candlestick Chart for DRN - July 2012

Soon after last month’s technical analysis, DRN generated a buy signal…go figure.  It also appears that DRN broken the July ’11-May ’12 downtrend along with the “bearish” symmetrical triangle I mentioned.  While DRN is back in play for August calls, I’ve got my eye on the 52-week high price level.  Leveraged ETF’s are built for day-traders, but that doesn’t mean people haven’t been holding shares all this time, waiting to break-even.

July Technical Analysis for EDC


June’s commentary:

EDC spent most of May testing the $65 support level.  Contrary to my thinking, the support level held.  EDC will have to get back to the low 80’s if it is going to test the current downtrend.  As with DRN, my program still hasn’t given a buy signal.

July’s Chart:

Candlestick Chart for EDC - July 2012

EDC gave me a small victory when it found support around $60 per share (the level mentioned back in April).  But the ETF does not appear to have the strength to break the May ’11-Jul ’11 downtrend.  If EDC breaks the $60 level, we have to go back to March ’09 for a support target of ~$30!

July Technical Analysis for ERX


June’s Commentary

The low 30’s showed some level of support, which is good.  ERX did not join the June rally with the same intensity as the other ETFs or the general market, which is bad.  If ERX could rally to the mid-40’s over the next month, then it would be back on my radar.  Until then, we wait.

July’s Chart:

Candlestick Chart for ERX - July 2012

ERX received a shot in the arm last week, rallying about 10%.  The ETF appears to be ready to challenge the Jul ’11 – Feb ’12 downtrend, so the shares are back on my radar (which means I’m watching my program for a buy point, not that it will be used for investing for cashflow in August).

July Technical Analysis for FAS


June’s Commentary

Weekly options or not, FAS was not a good play in May.  A previous resistance level ($80) failed to provide much support, although FAS did retake that level last week.  I’d need a +20% move next month to get FAS back on the radar for June/July cashflow.

July’s Chart:

Candlestick Chart for FAS - July 2012

No 20% rally for FAS, although it did rally more strongly than EDC or ERX.  The ETF is still a bit below the Feb ’11-Mar’ 12 trendline, so no covered calls at this time.

July Technical Analysis for TMF


June’s Commentary

TMF broke resistance in fine fashion last month, rallying another 20% or so…only to immediately retreat back to high 70’s.  The former mid-70 resistance level is now a support level, so hopefully we don’t have to fall all the way back to $60 anytime soon.  Again, TMF is the only play for June at this point.  With the uncertainty surrounding the Eurozone leading us into the summer months (traditionally a lighter trading period), I expect TMF to be quite volatile…good for premiums, bad for capital gains.

July’s Chart:

Candlestick Chart for TMF - July 2012

TMF continues to benefit from all the Eurozone debt issues.  Not that the U.S. is OK by any means;  The U.S. it is just the least “bad” right now.  The ETF is riding a healthy uptrend, similar in pace to the Aug ’11 – Dec ’11 time period.  Hopefully this one will last a little longer before heading sideways.

Summary


Green Light (Uptrend w/ Buy Signal): DRN, TMF

Yellow Light (Uptrend w/o Buy Signal or Downtrend w/ Buy-Signal) : N/A

Red Light (Downtrend): EDC, ERX, FAS

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

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