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TECHNICAL ANALYSIS


Short-Term Trend Change For Valero Energy

10/07/03 11:51:21 AM
by Kevin Hopson

As expected, Valero Energy has broken to the upside from its falling channel formation, thus confirming a short-term bottom for the stock.

Security:   VLO
Position:   Accumulate

I touched on Valero Energy (VLO) a couple of weeks ago, offering my suspicion that the stock was close to bottoming out. There were a few reasons for this. For one, Valero continued to consolidate within a falling channel formation, which is usually a bullish sign after a steep run-up. Additionally, the moving average convergence/divergence (MACD) was moving higher in light of the declining stock price. This was a bullish divergence on the chart and indicated a forthcoming bottom.

Also, May's former downtrend line (or the black median line) was coming into play just below the $37.00 level. Given support at slightly lower levels and the bullish signs on the chart, I recommended accumulating shares of Valero Energy on further price weakness. For confirmation of a bottom, I said to watch for a break of the upper channel line (top dotted blue line). As you can see, Valero bounced off the black median line and eventually broke to the upside from its falling channel formation.

Graphic provided by: Stockcharts.com.
 
Now that this has occurred, the stock is facing near-term resistance in the $39.00 to $39.20 range, site of the green median line and the top black parallel line. If Valero can overcome resistance here, the stock should see an even more significant breakout. One sign of such an event occurring is the potential bullish pennant that is forming, which is indicated by the red lines. Though it is too early to tell, Valero does appear to be putting in a pattern of lower highs and higher lows after last week's run-up. With volume drying up (as it should), a bullish pennant formation could be in the works. As a result, I would continue to accumulate shares of Valero Energy in the near-term.



Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.

Glen Allen, VA
E-mail address: hopson_1@yahoo.com

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Date: 10/12/03Rank: 5Comment: wHAT IS YOUR OPION ON VALERO ENERGY AT THIS POINT, NOW THAT IT HAS COME THIS FAR AS OF 10/10/03? CURIOUS !!
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