Investing for Cashflow – December 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”.


December Discussion – General Stock Market

The U.S equity markets have rallied nicely over the past 4 weeks.  I still think that corporate profits will be weak in the 4th quarter, but you can’t fight the market.  Just be prepared for any curve ball the fiscal cliff throws our way.

December Technical Analysis for DRN

Here were my thoughts on DRN in November:

DRN is still looking for support.  The current downtrend is fairly steep, so I expect to see some constructive price action within the next month or so.  Until that time, we’re still in a wait and see mode (red light).

December’s Chart:


Soon after the last technical analysis, DRN experienced constructive price action, as expected.  Now we just need to wait for a trendline to emerge and DRN will be back in the green.

December Technical Analysis for EDC

November’s commentary:

That new, short term uptrend (June to September) was REALLY short.  EDC broke it over the last few trading sessions.  Now we wait for EDC to test the May-June trendine (high 70’s).    Given the U.S. markets’ recent weakness and all the turmoil overseas (European economy and tensions between Israel and Palestine), EDC gets red light status until it can show some positive price action.

December’s Chart:


After breaking the uptrend, EDC recovered and shot higher.  Unfortunately, this means that the ETF is very extended from potential support (~20%) and now is not the time to trade covered calls.  So we wait.

December Technical Analysis for ERX

November’s Commentary

The ERX price pattern continues to mimic DRN.  So the plan is the same; watch ERX for some new trends to emerge (red light).

December’s Chart:


ERX mirrored DRN and broke its downtrend since Novembers technical analysis.  So as with DRN, we’re now looking for a confirmation of a new short term uptrend.

December Technical Analysis for FAS

November’s Commentary

Those sell signals came in handy…FAS broke the mid-term uptrend and is now headed towards a support level in the high 80’s.  Since FAS is still fairly extended from mid-term support, red light status is the order of the day.

December’s Chart:


After slicing through the uptrend, FAS followed the general markets higher.  The price has almost made it back to the level of the short-term uptrend. Usually, this is the time that the bottom falls out and we start another downtrend.  But we’ll have to wait and see.  For now, we’re looking for confirmation of the new uptrend, just like DRN and ERX.

December Technical Analysis for TMF

November’s Commentary

TMF found support from the Jul’11-Apr’12 uptrend, which is good news.  The bad news is that TMF is more than 10% away from the mid-term uptrend.  I expect TMF to come down in price, and either test the mid-term trend, or find a new short-term low (yellow light).

December’s Chart:


TMF ran into a mid-term downtrend (July-November) and couldn’t break through.  The price is still above the current uptrend, so I’m on the look-out for a new short-term low (yellow light).


Green Light (Uptrend): None

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

Red Light (Downtrend or Broken Trendline): None


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

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