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Good time for covered call!

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Shares of Seitel (NYSE:SEI) have gotten a very nice "bounce" today and it might be a good time for subscribers to be writing some covered calls or for swing traders to be locking in some nice gains. I still like the stock through the summer as exploration season in the U.S and much of the Northern Hemisphere gets started. Nonetheless, the stock has gained 27% since I profiled it on February 27th. It hasn't been exciting, but it has been good!

Seitel (SEI) Chart - 60-minute interval

I've been following shares of SEI for traders the past month and today might be a good time for longer-term investors to be writing some covered calls. The stock looks a bit overextended and traders could reduce their cost basis in the stock with a covered call. The April 20 (SEIDD) is currently bid $2.55, giving the trader/investor a cost basis in the stock of $14 (if bought on first profile date at $16.50) and the obligation to sell the stock at $20 on or before April 20th. If the stock were to close below the $20 level on April 20 th, that would be super if you're planning on holding through the summer. This was an ideal stock for those who are trading in their IRA's.

Markets are made up of sectors

Traders should be monitoring multiple sectors and understanding how they can/could contribute to a broader market. Two sectors I'd have a close eye on here are the SOX and DDDX. Both are trading right at their 38.2% retracement levels and I'd like to see them get above these levels for the NASDAQ Composite to move higher.

Disk Drive Index (DDX.X) Chart - last seven months

Traders could use the retracement bracket levels from above to start setting some alerts on their trade stations. Q-charts allows the trader to set alerts from their retracement bracket. I'd also hand enter an alert for a break above the 99 level at the 200-day MA. If you start getting upside alerts here, you'll know that this group of stocks is moving higher. At the same time, I could set an alert just below 93 and the 50-day MA to give me a short-term alert to potential weakness. This now defines a short-term range that would be very beneficial for a short-term trader trading technology stocks.

Semiconductor Index (SOX.X) Chart - last seven months

Much like the Disk Drive Index (DDX.X) the Semiconductor Index (SOX.X) is trading right at its 38.2% retracement level. With the two put together, traders now realize we are perhaps trading right at a "neutral level" or a level of resistance short-term. If we start seeing trading above these levels, we'd say things are getting stronger. If I'm using the bullish percent reading for this index near 19%, I understand that the group is still in "oversold" territory so I have a bullish view on the group over the next week or so. If I was near 520 as it relates to the bullish percent, I'm very pleased with the move so far in the above chart and bullish percent moving in a favorable direction.

GSTI Software Index (GSO.X) Chart - 60-minute interval

The charts of the DDX and SOX had retracement brackets using a more "conventional" approach of retracement. Using a recent low and high for their retracement levels. However, that approach would not work on the GSO.X as it is trading at new 52-week lows. Therefor, I'm using a more advanced technique that requires the trader to establish some level of support that an institutional trader might be using as he/she manages inventory in their market making activities. Unless I'm willing to assume support dating back 2 years, this is a technique of retracement traders can use. One subscriber sent me an e-mail saying he/she was getting little use of this type of commentary. If he/she is holding a software stock today, odds are that stock is not performing with the NASDAQ Composite, but acting more like a software stock. A good test for that subscriber or any subscriber would be to compare one of the "big four" we talked about this morning. How is Microsoft (NASDAQ:MSFT) performing (it's a software stock) compared to Intel (NASDAQ:INTC) a semiconductor stock? Just remember... MARKET, SECTOR, STOCK... MARKET, SECTOR, STOCK...

Jeff Bailey
Staff Analyst

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