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”.

Enjoy!

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:

DRN-2012-12-18

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:

EDC-2012-12-18

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-2012-12-18

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:

FAS-2012-12-18

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-2012-12-18

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).

Summary


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

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Cashflow Report – Portfolio Income During November 2012

Welcome to the Investing for Cashflow Report – November 2012 Edition!

Each month, I review the portfolio income (i.e. paper income or income from investments) created from trading covered calls and create a “cashflow report” (hat tip to Pat Flynn over at Smart Passive Income). Analyzing trades is something every investor/trader should do on a regular basis, so this is my attempt to practice what I preach. The reports do the following:

  1. Help me track my progress towards financial independence
  2. Maintain my focus on increasing paper income and meeting my goals each month
  3. Provide an example of creating an income from investing/trading (actually making money!)
  4. Get your feedback on ways to improve

Enjoy!

Overview of November 2012

The general markets (DJIA, NASD, SP500) recovered from the October downtrend, making their way back to their respective 50 day moving averages.

Insights & Lessons Learned in November

I learned that my trading system isn’t as automated as I thought. I spent most of the month away from my trading desk, and subsequently missed out on some opportunities. This is a big miss because the market has been so choppy; opportunities have a very high probability of being short-term. On the plus side, I may have missed an exit signal as well, given my time constraints and inability to monitor the market daily.

Cashflow Report – Portfolio Income During November 2012 – Breakdown:

DRN-Direxion Daily Real Estate Bull 3X (ETF)

Premiums = $0.00
Dividends = $0.00

EDC-Direxion Daily Emerging Markets Bull 3X (ETF)

Premiums = $0.00
Dividends = $0.00

ERX-Direxion Daily Energy Bull 3X Shares (ETF)

Premiums = $0.00
Dividends = $0.00

FAS-Direxion Daily Financial Bull 3X Shares (ETF)

Premiums = $0.00
Dividends = $0.00

TMF-Direxion Daily 20+ Yr Trsy Bull 3X Shares (ETF)

Premiums = $2.30
Dividends = $0.00

Cashflow = $224.35
Estimated October Capital Gains/Losses = ($278.94)

Goal Not Achieved

The month ended with TMF below my purchase price. My account balance shows a loss because the option premiums weren’t high enough to offset the loss in ETF value. This seems to be a recurring theme this year!

Bar chart showing year to date returns from covered calls

GOAL: Execute a covered call trading strategy that creates PROFIT greater than $3,600 USD per month and deposits $3,600 USD per month into an expense account, for 3 months straight.

The Road Ahead

With all the fiscal cliff talk, it is hard to separate the wheat from the chaff, so to speak. The markets have been in rally mode since the middle of November, volume has remained lower than average. To me, this indicates a lack of selling, rather than a large amount of buying.

Related Posts

Investing for Cashflow – November 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!

November Discussion – General Stock Market


The general U.S equity markets continued to fall over the past 4 weeks.  The 3rd quarter was the worst quarter for corporate profits in 3 years, and there is no reason to expect the 4th quarter to be much better.  Until there are some signs of strength, protect your capital.

November Technical Analysis for DRN


Here were my thoughts on DRN in October:

DRN was still working its way down to the Sept-Dec-June uptrend when options expired on the 19th.  As of the 26th, DRN failed to find support and broke the uptrend, giving us a new, short-term downtrend.  All we can do with DRN is watch and wait (red light).

November’s Chart:

Price Chart for DRN with Trendlines

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).

November Technical Analysis for EDC


October’s commentary:

EDC traded sideways in October, staying between the high 80’s and low 90’s.  It appears that there is a new short term uptrend (June to September), and EDC’s price is only 5% above that mark.  A new uptrend would move the the May-June trendine to a mid to long-term uptrend (still in the mid-70’s), which seems to be a better fit given the uptrend’s small slope.  This new development makes EDC a green light for October, which is an improvement from September’s yellow light status.

November’s Chart:

Price Chart for EDC with Trendlines

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.

November Technical Analysis for ERX


October’s Commentary

ERX fell back to June-September uptrend and found support for a few days.  Unfortunately, that support didn’t last long; ERX broke the uptrend and forced me to sell.  There was a brief rally back to that same uptrend, which has now become a new level of resistance.  As with DRN, we can only watch ERX for the time being and wait for some new trends to emerge (red light).

November’s Chart:

Price Chart for ERX with Trendlines

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

November Technical Analysis for FAS


October’s Commentary

The price of FAS is within a few percent of the short term uptrend, so we’ve entered buy territory.  But be careful – the mid-term uptrend is down in the mid-80’s, so a steep sell off could occur if we break the short term trendline.  Keep your sell signals at the ready if you do decide to enter a position.

November’s Chart:

Price Chart for FAS with Trendlines

Those sell signals came in handy…FAS broke he 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.

November Technical Analysis for TMF


October’s Commentary

TMF broke the short-term downtrend (July-September) I mentioned last month , but prices were unable to make much headway.  Instead, TMF spent most of the month between $70-$75 per share.  Since the downtrend is broken, I’m more bullish on this ETF.  But I also want to see TMF find support from the Jul’11-Apr’12 uptrend.

November’s Chart:

Price Chart for TMF with Trendlines

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).

Summary


Green Light (Uptrend): None

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

Red Light (Downtrend or Broken Trendline): DRN, EDC, ERX, FAS

Cashflow Report – Portfolio Income During October 2012

Welcome to the Investing for Cashflow Report – October 2012 Edition!

Each month, I review the portfolio income (i.e. paper income or income from investments) created from trading covered calls and create a “cashflow report” (hat tip to Pat Flynn over at Smart Passive Income). Analyzing trades is something every investor/trader should do on a regular basis, so this is my attempt to practice what I preach. The reports do the following:

  1. Help me track my progress towards financial independence
  2. Maintain my focus on increasing paper income and meeting my goals each month
  3. Provide an example of creating an income from investing/trading (actually making money!)
  4. Get your feedback on ways to improve

Enjoy!

Overview of October 2012

The geneal markets (DJIA, NASD, SP500) entered a downtrend in October after running into institutional selling early on. And we had a shortened trading month with the markets closed in the aftermath of Hurricane Sandy.

After moving sideways for half the month, DRN solidified a new downtrend, as did ERX. EDC and FAS continued to find support around the 90 and 110 dollar level, respectively. TMF seems to have found support around $70 and may be ready to start a new uptrend in November.

Insights & Lessons Learned in October

My new method for creating trendlines appears to be working.  I avoided a capital loss of at least 10% last month on ERX.  I’m hopeful that it will work just as well on the profit side!  However, my trading will be less consistent, meaning that I won’t always be in the market.  I’m not sure how that will affect my ability to make money each month.

Cashflow Report – Portfolio Income During October 2012 – Breakdown:

DRN-Direxion Daily Real Estate Bull 3X (ETF)

Premiums = $0.00
Dividends = $0.00

EDC-Direxion Daily Emerging Markets Bull 3X (ETF)

Premiums = $0.00
Dividends = $0.00

ERX-Direxion Daily Energy Bull 3X Shares (ETF)

Premiums = $0.00
Dividends = $0.00

FAS-Direxion Daily Financial Bull 3X Shares (ETF)

Premiums = $0.00
Dividends = $0.00

TMF-Direxion Daily 20+ Yr Trsy Bull 3X Shares (ETF)

Premiums = $0.00
Dividends = $0.00

Cashflow = $0.00
October Capital Gains/Losses = $50.31

Goal Not Achieved

After all was said and done last month, I ended up with a $50 capital gain on my ERX trade. Not even close to my goal, but it wasn’t a loss either!

Bar chart showing year to date returns from covered calls
GOAL: Execute a covered call trading strategy that creates PROFIT greater than $3,600 USD per month and deposits $3,600 USD per month into an expense account, for 3 months straight.

The Road Ahead

I’m continuing to monitor EDC and FAS.  They’re both close to my trendlines, so now is a good time to enter a position.  But only two weeks left to option expiration for November, I’ll have to make sure that the premiums will cover potential losses.

Related Posts

Investing for Cashflow – October 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!

October Discussion – General Stock Market


The general market ran into institutional selling this month, due to weak earnings reports, and entered a correction.  But the U.S. Federal Reserve has stated it will do what it takes to keep the economy limping along.  We’ll have to see what kind of support that provides the financial markets.

October Technical Analysis for DRN


Here were my thoughts on DRN in September:

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 covered calls.

October’s Chart:

Price Chart for DRN with Trendlines

DRN was still working its way down to the Sept-Dec-June uptrend when options expired on the 19th.  As of the 26th, DRN failed to find support and broke the uptrend, giving us a new, short-term downtrend.  All we can do with DRN is watch and wait (red light).

October Technical Analysis for EDC


September’s commentary:

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.

October’s Chart:

Price Chart for EDC with Trendlines

EDC traded sideways in October, staying between the high 80’s and low 90’s.  It appears that there is a new short term uptrend (June to September), and EDC’s price is only 5% above that mark.  A new uptrend would move the the May-June trendine to a mid to long-term uptrend (still in the mid-70’s), which seems to be a better fit given the uptrend’s small slope.  This new development makes EDC a green light for October, which is an improvement from September’s yellow light status.

October Technical Analysis for ERX


September’s Commentary

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.

October’s Chart:

Price Chart for ERX with Trendlines

ERX did  fall back to June-September uptrend and found support for a few days.  Unfortunately, that support didn’t last long; ERX broke the uptrend and forced me to sell.  There was a brief rally back to that same uptrend, which has now become a new level of resistance.  As with DRN, we can only watch ERX for the time being and wait for some new trends to emerge (red light).

October Technical Analysis for FAS


September’s Commentary

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.

October’s Chart:

Price Chart for FAS with Trendlines

The price of FAS is within a few percent of the short term uptrend, so we’ve entered buy territory.  But be careful – the mid-term uptrend is down in the mid-80’s, so a steep sell off could occur if we break the short term trendline.  Keep your sell signals at the ready if you do decide to enter a position.

October Technical Analysis for TMF


September’s Commentary

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.

October’s Chart:

Price Chart for TMF with Trendlines

TMF did break the short-term downtrend I mentioned last month (July-September), but prices were unable to make much headway.  Instead, TMF spent most of the month between $70-$75 per share.  Since the downtrend in broken, I tend to be more bullish on this ETF, but I also want to see it find support from the Jul’11-Apr’12 uptrend.

Summary


Green Light (Uptrend):  EDC. FAS

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

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

Cashflow Report – Portfolio Income During September 2012

Welcome to the Investing for Cashflow Report – September 2012 Edition!

Each month, I review the portfolio income (i.e. paper income or income from investments) created from trading covered calls and create a “cashflow report” (hat tip to Pat Flynn over at Smart Passive Income). Analyzing trades is something every investor/trader should do on a regular basis, so this is my attempt to practice what I preach. The reports do the following:

  1. Help me track my progress towards financial independence
  2. Maintain my focus on increasing paper income and meeting my goals each month
  3. Provide an example of creating an income from investing/trading (actually making money!)
  4. Get your feedback on ways to improve

Enjoy!

Overview of September 2012

Not a lot going on in September.  I guessed correctly that the markets would rise due to the European Central Bank and US Fed actions, but that is not an investing strategy. So I remained on the sidelines for most of the month, and let the QE events unfold.

The general markets (DJIA, NASD, SP500) were pretty quiet last month.  Trading volume remained lower than average and prices rose in small increments when not reacting to the news.

Insights & Lessons Learned in September

I spent some time playing with spreadsheets last month, trying to creating new entry and exit signals. I ended up going with some really basic trendlines, so I no longer have to draw them by hand. You can see the results of my efforts in September’s last technical analysis.

The spreadsheets use actual closing prices, and then I played connect the dots for short term and mid term trends. Taking the change in price between two lows (or highs) and dividing it by the number of trading days in between gives me a price change per day. I then extend the price forward in time to the next option expiration date, creating a trendline and giving me stops for my underlying positions.

Not only do I have price targets for my stops, but I also can calculate how far away from the trendline an ETF is currently trading. This will be great for determining whether the covered call trade is worth the risk. I already calculate the percent return provided by covered call premiums. Now, I can compare that to the loss I would need to endure before the underlying ETF reached the trendline (i.e. my new stop price). If an ETF is 15% above its trendline and the covered call only yields 5%, the overall trade could lose 10% before the ETF found support or broke the trendline.

Don’t get me wrong here. Leveraged ETF’s are volatile, so this new trendline calculation is not fool-proof…it is just more responsive than my other program and allows me to control my losses a bit more.

Cashflow Report – Portfolio Income During September 2012 – Breakdown:

DRN-Direxion Daily Real Estate Bull 3X (ETF)

Premiums = $0.00
Dividends = $0.00

EDC-Direxion Daily Emerging Markets Bull 3X (ETF)

Premiums = $0.00
Dividends = $0.00

ERX-Direxion Daily Energy Bull 3X Shares (ETF)

Premiums = $209.36
Dividends = $0.00

FAS-Direxion Daily Financial Bull 3X Shares (ETF)

Premiums = $173.36
Dividends = $0.00

TMF-Direxion Daily 20+ Yr Trsy Bull 3X Shares (ETF)

Premiums = $0.00
Dividends = $0.00

Cashflow = $382.72
Estimated Capital Gains/Losses = (307.05)

Goal Not Achieved

My ERX position was down ~$2 at the end of the month and my earlier FAS position ended up with a small capital loss on the underlying position. So my actual return came out pretty small. We’ll have to see where ERX ends up this month before calling it a wash.
 
Bar chart showing year to date returns from covered calls
GOAL: Execute a covered call trading strategy that creates profit greater than $3,600 USD per month and deposits $3,600 USD per month into an expense account, for 3 months straight.

The Road Ahead

I kicked off September with one position in FAS (which was assigned), and then waiting for the smoke to clear from the QE craze that took hold. Towards the end of the month, I took my own advice and entered a position in ERX when it found support at my newly designed trendline.

Related Posts

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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