The Dow Jones Industrials, after behaving badly and rather wildly, since early May, seems to be regaining its footing. Better news from Europe, China cooling to a still-torrid but more sustainable growth rate, US earnings coming in strong, the prospect of plugging the Deepwater leak - all play a part, no doubt.

Note in the following chart that the Dow has:

1. Broken above the (red) downtrend line.
2. Broken solidly above the 20-day and 50-day averages.
3. Now broken above the 200-day average.

It closed above the 200-day on Friday last, and remains above it. This is no assurance that the troubles are over. The Dow needs to close strong today. A close above the June resistance level is necessary for us to have any confidence that the correction is over. The head-and-shoulders pattern that I worried about earlier was not confirmed, but I will breathe a sigh of relief once we take out the June pivot high.

I am guardedly optimistic. Most covered calls written in early June or early July would have worked fine, assuming the stock showed the same or greater strength than the market. And many did.

The market remains news-sensitive, but that is the nature of the beast now. I will wait a few days before putting on any trades just to see if the market chokes at the June resistance levels.

This entry was posted on Monday, July 26th, 2010 at 10:34 am and is filed under Covered Calls, Markets/Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.