Energy stocks such as Valero Energy Corporation (NYSE:VLO) have rallied notably over the past three weeks. The rally has been pronounced enough that my proprietary trend algorithm flipped the entire energy sector, as represented by the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE), back to near-term bullish (after having been near-term bearish for a month).
Over the past few trading days particularly, VLO stock pushed above a critical technical area of resistance and now could be setting up for a next more meaningful push higher.
Regular readers of this here daily column know that one of the key attributes of my analysis of markets is the multi-time-frame approach. As part of this analysis I also look for stocks within sectors that show early signs of relative bullishness (for buy setups) and those showing relative bearishness versus its sector (for sell or shorting setups).
Case in point, this ratio chart shows that VLO stock has been showing relative strength versus the energy sector not only over the past few months, but also year-to-date and over the past twelve months.
VLO Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear weekly chart, we see that VLO stock has been struggling to overcome the $71 area for the past ten years.
Note how even after a steep rally out of the financial crisis, VLO stock in 2015 found resistance at its previous all-time highs from 2007. Over the past couple of years the stock has found itself in a new bigger-picture consolidation phase that ultimately does favor the odds of a break past all-time highs around the $71 area.
Moving averages legend: red – 200-day, blue – 100-day, yellow – 50-day
On the daily chart, we further note that VLO stock since late 2016 has been working on a very well-defined line of diagonal resistance (black line). The price action since late 2016 also traced out a bullish formation called an inverse head and shoulders, which I marked with the blue boxes.
The black diagonal also serves as the “neckline” of this formation, and VLO stock in recent days had a marginal breakout above this line. A simple measured move of this inverse head and shoulders pattern gives us a price target in the high $70s. While I do not think this target will be reached in a straight line, traders and investors willing to put on a bullish bet based on this multi time-frame analysis could use the high $70s as a next bigger upside target. Any strong bearish reversal on a weekly closing basis particularly if also seen in the broader energy sector would be a stop loss signal.
Check out Anthony Mirhaydari’s Daily Market Outlook for Sept. 13.
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