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TECHNICAL ANALYSIS


Tesoro Corp.'s New Buy Setup

04/26/11 12:30:59 PM
by Donald W. Pendergast, Jr.

The broad markets still seem to have some potential to go higher, but drilling down to the better-performing component stocks looks like the way to go.

Security:   TSO
Position:   Buy

Shares of Tesoro Corp. have fired a new Rahul Mohindar oscillator (RMO) swing buy signal amid a reasonably healthy looking technical backdrop. Here's a closer look at the details.

FIGURE 1: TSO, DAILY. Decent money flows, increasing momentum, and a new buy signal all combine to suggest that shares of Tesoro may be primed for at least a retest of the April 6th high at $28.74.
Graphic provided by: MetaStock.
Graphic provided by: Rahul Mohindar RMO oscillator from MetaStock 11.
 
The nice thing about the RMO trading system in MetaStock 11 is that in most cases, you'll almost always get on board a strong trending move every so often, should you actually take every swing signal generated. This is not necessarily how the system is meant to be used, but it does show that the method does have a powerful underlying logic that drives signal generation.

The current buy signal arrives in the wake of a minor pullback to support and reaction higher that ensued, well above the upsloping 50-period exponential moving average (EMA) (Figure 1). In addition, the RMO oscillator (top of the chart) is still in a very strong bullish momentum mode and the intermediate-term Chaikin money flow (CMF)(34) remains above its zero line. This trade setup has been replicated in one form or another on a variety of Standard & Poor's 500 component stocks over the past few weeks, and like many of those others, this one is distinguished by the fact that TSO shares are substantially outperforming the .SPX itself over the last 13 weeks. Trading is a game of probabilities combined with sensible risk control, and overall, this looks to be a reasonably sane place to make a long trade entry.

Buy-on-strength type traders could simply wait for a minor two or three tick break of the Monday trigger bar high of $27.94 and then choose to run a simple two- to three-bar trailing stop of the daily lows to manage the position for the entire life of the trade. The "gotta wait for a better deal" types might try to attempt a partial entry on a minor intraday pullback to support, but that method always runs the risk of missing out on the trade completely. In other words, as the old saying goes, "You pays your money and you makes your choice."

When the broad markets are trending, using the RMO trading system can be a great way to apply a well-designed system concept to the individual stocks you like to trade. Give it a try and see how well it works in your own trading universe.



Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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