TSO Movin' On Up?

03/15/12 08:23:39 AM

by Donald W. Pendergast, Jr.

Shares of Tesoro Corp. are poised to make an attempt to make a new multimonth high -- if the broad market cooperates.

Security: TSO
Position: N/A

Tesoro (TSO) shares have enjoyed two substantial rally phases since the market-wide low of October 4, 2011. The first rise up was very sharp, lasting about five weeks, and resulted in a gain of nearly 40%. After a fairly swift retracement of about 70% of the initial move up, TSO once again proceeded to tack on gains, albeit at a slower rate of speed.

TSO just experienced a minor pullback but has staged a nice breakout of the first channel line connecting the November 2011 and February 2012 swing highs; the daily range on Thursday's surge higher is also very wide, lending extra believability to the possibility of a run at the November 2011 swing high of $29.61 -- and soon. Long-term money flow remains very strong (based on the 100-period Chaikin money flow histogram [CMF][100) at the bottom of the chart).

Now, I know all too well that making market predictions can be a very expensive hobby, but it seems to me that the Standard & Poor's 500 probably doesn't have enough energy left to power a rally up much past the recent swing high (if it makes it that high at all), since it is already giving evidence that distribution is taking place; stock is being transferred from already profitable traders into the hands of market latecomers who still believe more big rallies are soon possible.

However, that still shouldn't dissuade traders from setting up long trades in TSO, even though they still might wish to use smaller position sizes to limit risk in the event that the entire market starts heading back south in a hurry, especially if the current upswing fails to take out last week's high. See Figures 1 and 2.

FIGURE 1: TSO, DAILY. One down, one to go? Maybe. A clean break and then close above the November 2011 swing high of $29.61 might attract even more big money into buying more of a position in TSO.

Graphic provided by: MetaStock.

Graphic provided by: RMO indicators from MetaStock 11.

Covered calls (CC) are a definite possibility here, and the latest uptrend line might just help such covered-call traders manage their positions for the life of any near-term buy-writes that they may construct. Near-term calls for CC trades are an absolute must here, as the probabilities for a multimonth continuation of the current rally grow slimmer with each passing day.

Swing traders might put on a full position on a break above Thursday's high of $29.26, being ready to take partial profits and then set a breakeven stop if $29.60 is reached quickly. Breakouts can be frustrating to trade at times, and the timing of such breaks may not always coincide with the "how/when" scenarios we can cook up in our imaginations. Therefore, trade risk control becomes very important, and it's usually best to keep position sizes modest, given the unexpected surprises that a failed breakout attempt can bring to an ignorant trader.

Included here is a partial list of large-cap stocks that made new multimonth highs on Thursday; one of Tesoro's main competitors -- Valero -- also had a big up day, as did stocks from a variety of sectors and industries. Apparently, at least some traders and investors still see value in many groups of the .SPX, and they are willing to put their money on the line to yest the validity of their convictions.

Hopefully, they too will already have a sound, no-questions-asked exit strategy in place just in case the current move up in the S&P 500 is the calm before the proverbial storm.

FIGURE 2: LARGE-CAP STOCKS. A variety of large-cap stocks made new highs on Thursday, March 8, 2012.

Graphic provided by: MetaStock.

Graphic provided by: MetaStock Explorer..

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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TSO Movin' On Up?

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