Today, we’ll look at three companies in the oil and gas (refining and marketing) industry whose stocks have struggled over the past several months.
Any attempt to dig out of their downward spirals has been swiftly met with sharp declines, keeping any short-term price rallies in check — and frustrating longs who believed the proverbial storm had passed them by.
As shares of these companies navigate a bottom, we’ll use Profit Scanner powered by Recognia to determine whether now might be a good time to pick them up at a discount, sit on the sidelines or even play the downside in anticipation of more weakness to come.
So, let’s get to it.
Energy Stocks Seeking a Bottom: Renewable Energy Group (REGI)
Renewable Energy Group Inc (NASDAQ:REGI) is a developer of renewable chemicals and a producer of biofuels.
In the price chart of REGI above, you’ll notice a longer down-trending trading range interrupted by a short-term one moving in the opposite direction. This brief counter move is known as a bearish flag pattern, and it indicates that the larger downtrend is likely to continue.
This formation follows a steep, nearly vertical price decline and consists of two parallel trendlines that form a rectangular flag shape. The flag itself can be horizontal (as though the wind is blowing it), although it often has a slight upward trend. And it is the latter scenario we’re seeing play out more recently, as shown by the annotations made in red.
The vertical downtrend that precedes a flag may occur because of buyers’ reactions to an unfavorable company announcement, such as a court case, or a sudden and unexpected departure of a CEO. The sharp price decrease is sometimes referred to as the “flagpole” or “mast” and simply serves as a relief rally with some short position profit-taking mixed in.
Now that REGI has broken down below the flag pattern itself — and, thus, confirmed it — Profit Scanner tells us that the target price in the short term is $7.10 per share. With shares currently trading at $8.06, investors taking action stand to score gains of up to 11.9%.
Energy Stocks Seeking a Bottom: Valero Energy (VLO)
Valero Energy Corporation (NYSE:VLO) transports and markets fuels, petrochemical and power. In the chart above, we see plenty of counter rallies trapped within a much larger downtrend.
Profit Scanner signaled a completed (bearish) symmetrical triangle pattern on Sept. 26, when the stock closed at $54.29 per share. The price pattern outlined in red above shows two converging trendlines, the lower one ascending and the upper one descending.
The formation occurs because prices made both lower highs and higher lows. Furthermore, the pattern displayed at least two highs touching the upper (descending) trendline and two lows touching the lower (ascending) trendline.
Ultimately, the pattern was confirmed when the price of VLO broke down and out of the triangle formation to close below the lower (ascending) trendline.
With that in mind, Profit Scanner then goes on to inform us that the target price range is $50 per share. Given the current price of the stock, we’re looking at potential gains of up to 3.1%, assuming the target is met.
Energy Stocks Seeking a Bottom: Ultrapar (UGP)
Ultrapar Participacoes SA (ADR) (NYSE:UGP) is a fuel distribution company operating out of Sao Paulo, Brazil. In the chart above, we have another bearish flag pattern similar to that of REGI that we reviewed above.
UGP put up a decent fight at $21 support, bouncing up to $22.37, but the momentum could not be sustained and shares fell out of the flag formation to the downside.
Profit Scanner is looking for UGP to reach a target price of $19.90 in the short term. And with shares currently trading at $21.65, investors betting on more declines to come could capture gains of up to 8.1%.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.