Investing for Cashflow – September 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!

September Discussion – General Stock Market


The general market was fairly flat for the latter part of August, if not a little to the downside.  September started with a nice bump up from renewed confidence in Europe, and we saw another substantial jump a few days later as the U.S. Federal Reserve announced QE3.   The surprise came with trading volume…it has actually been higher than average this month.

On a related note, I decided to automate my trendlines, rather than drawing them by hand.  I’m attempting to use them as stops, rather than trying to estimate where the potential sell point lies.

September Technical Analysis for DRN


Here were my thoughts on DRN in August:

DRN did not move around too much last month, but that doesn’t mean everything is golden.  The price action two weeks ago was cause for concern.  DRN fell below $75, which broke the June uptrend.  The next support level is in the upper 60’s.  In addition, volume steadily declined since June, which is not the trend you want to see when prices are approaching a 52-week high.  DRN is still in an uptrend, but I’m not in a rush to trade covered calls.  I’d like to see a test of the December-June trendline before getting back in on DRN.

September’s Chart:

Price Chart for DRN - 2012-09-24

 

I was a bit premature on my call of DRN breaking its uptrend in August.  It rode the uptrend higher, and only broke down during the past few trading sessions.  The Sept-Dec-June trendline sits at $70 right now, so DRN needs to come down and test that area before I’ll trade September covered calls.

September Technical Analysis for EDC


August’s commentary:

EDC found support right after my last technical analysis, and has headed higher since.  The good news is that EDC did find the strength to break the May ’11-Jul ’11 downtrend.  That puts it back in buy territory for covered calls.  EDC appears to be range bound between ~$60 and $120, if you can call a 2x increase a “range”.  This large span in price makes me hesitate on pulling the trigger.  EDC could lose $24 per share before finding support, and monthly option premiums won’t cover that kind of loss.

September’s Chart:

Price Chart for EDC - 2012-09-24

I’ve been hesitant on EDC because it has been so much higher than its support levels.  In late August it did retreat from the May-June trendline, but has since broken that resistance level and headed higher.  With support in the 70’s, EDC is trading at least 20% higher, so now is not the time to enter covered calls.

September Technical Analysis for ERX


August’s Commentary

ERX  broke the Jul ’11 – Feb ’12 downtrend, so next up is the April ’11-July’11 downtrend.  It also appears that ERX is range bound between $30 and $60…and just like EDC, that is a 200% range.  This difference for ERX is its price is closer to resistance levels and is therefore more likely to fall in price in the August/September timeframe.

September’s Chart:

Price Chart for ERX - 2012-09-24

ERX broke the April-July trendline I mentioned last month, but quickly retreated.  Coincidentally, EDC hit the $60 ceiling, so it is still rangebound.  Right now, it’s about 10% over the support level, which isn’t too bad.  I’d like to see it get a little closer to the short term uptrend before entering a position, but ERX looks like the best play this month.

September Technical Analysis for FAS


August’s Commentary

FAS broke through the Feb ’11-Mar’ 12 trendline, so covered calls are back on the table.  There is long term downtrend to deal with, but testing that trend is probably months away.  Odds are that FAS will test the Nov ’11-Jun’12 uptrend over the August/September timeframe.

September’s Chart:

Price Chart with Trendlines for FAS - 2012-09-24

FAS continued to march higher since the last technical analysis.  Within the last few trading days, a resistance level from last summer knocked FAS back down.  But with all the QE and ECB talk these days, it is hard to bet against the financial sector.  Still, as with the other ETFs, I would like to see FAS head back to 100 before entering a position.

September Technical Analysis for TMF


August’s Commentary

TMF had a hard time the past 4 weeks, falling 22% since the last technical analysis.  It broke the short-term uptrend as we entered August and continued south.  TMF is still above the longer term uptrend (Jul’11-Apr’12).  I won’t enter a covered call trade until TMF can find its footing.

September’s Chart:

Price Chart with Trendlines for TMF - 2012-09-24

TMF found some support at the Jul’11-Apr’12 uptrend, but we’ll have to see if it has the strength the break the short-term downtrend.  It could be a good play for September, as it is less than 10% from a major support line. I’m going to place TMF in the red light category, as the short-term trend is still downward.  But there is an opportunity for a short term option play if you keep your money management rules tight.

Summary


Green Light (Uptrend):  ERX

Yellow Light (No Trend, Range Bound, or Extended from Trendline) : EDC, FAS

Red Light (Downtrend or Broken Trendline): DRN, TMF

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

One Response to Investing for Cashflow – September Technical Analysis

  1. Pingback: Cashflow Report – Portfolio Income During September 2012 « Investing for Cashflow

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