Trade of the Day: Valero Energy (VLO)

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With all of the volatility in the energy sector, we’ve been trading in and out of oil refiners, and we’ve opened a new bearish trade on Valero Energy (VLO).

While the “crack spread” seemed to be stabilizing recently, a surprise announcement from the Energy Information Administration (EIA) at the end of April included that U.S. crude inventories only rose by 1.9 million barrels — a much smaller amount than was anticipated — and that crude stocks in Cushing, Oklahoma actually fell by 514,000 barrels.

This is the first time Cushing has seen a drawdown since November 2014. This news sent oil prices higher in anticipation that the supply glut the global economy has been working through may finally be easing, and rising oil prices tend to tighten the crack spread. On top of that, if the U.S. dollar continues to drop, it will also put upward price pressure on oil.

Our recommendation: Buy to open the Valero June 55 Puts (VLO150619P00055000) for a maximum price of $1.85.

Valero is on the verge of completing a textbook “head-and-shoulders” bearish reversal pattern. Once Valero breaks through support at $57, it could easily drop down to support at $54 (the price range where the stock consolidated in early February). This $3 move from $57 to $54 would match the $3 height of the right shoulder of the pattern ($60 – $57 = $3).

Valero-VLO

 

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here.

You can learn more about identifying price patterns – like a bearish head and shoulders – and using them to project how far you think a stock is going to move in their Advanced Technical Analysis Program.


Article printed from InvestorPlace Media, https://investorplace.com/2015/05/trade-of-the-day-valero-energy-vlo/.

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