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Valero Energy Corp. (VLO) dropped below its 38.2% retracement support and basic Fibonacci analysis makes the 50% support at $27.19 the next major level to watch.
- VLO had a high of $34.35 in September, but Tuesday’s close above the 20-day EMA is the first sign that the worst of the selling may be over.
- The 127.2% Fibonacci retracement target is at $26.15.
- The daily relative performance appears to have formed a bottom (line c) and a move through resistance at line b, will confirm it.
- The volume in VLO also picked up Tuesday, and the OBV is back above its WMA.
- The OBV needs to surpass the downtrend at line d to confirm that the correction is over.
- There is first good support now in the $29.20-$29.60 area with key support at $27.89.
Hess Corp. (HES) has completed its flag formation (lines e and f) and looks ready to overcome the 61.8% Fibonacci retracement resistance at $57.33.
- The measured upside target from the formation is in the $60.50-$62 area.
- HES had a high in early 2012 of $67.86.
- The daily relative performance has broken through its resistance (line g) which confirms the price action.
- The daily on-balance volume (OBV) held good support, line h, over the past two months and has moved above the early September highs.
- The daily chart has initial support now in the $53.80-$54.20 area.
- There is more critical support now in the $51.60-$52 area.
What it Means: Even though the overall stock market may give up Tuesday’s gains in Wednesday’s session, this is likely to create a buying opportunity in those sectors that already appear to have bottomed. In October I made the case that the energy stocks could lead the next market rally. They need to rally further to support this view. It will be important that the recent lows hold, which makes the risk control quite good on new long positions.
How to Profit: For those not already long Select Sector SPDR Energy (XLE) should go 50% long at $72.26 and 50% long at $71.72 with a stop at $69.87 (risk of approx. 3%).
For Marathon Oil Corporation (MRO), go 50% long at $30.88 and 50% long at $29.84 with a stop at $28.48 (risk of approx. 6.1%).
For Valero Energy Corp. (VLO), go 50% long at $29.68 and 50% long at $29.14 with a stop at $27.68 (risk of approx. 5.8%).
For Hess Corp. (HES), go 50% long at $54.42 and 50% long at $53.66 with a stop at $51.28 (risk of approx. 5.1%).
Portfolio Update: Should be 50% long Select Sector SPDR Energy (XLE) at $73.08 and 50% long at $72.74. Use a stop at $69.87.
Investors were 50% long the SPDR S&P Oil & Gas Exploration (XOP) at $48.66 or may have bought later at $55.32. Both were stopped out at $51.34.
For Weatherford International (WFT), investors were 50% long at $12.88 and 50% long at $12.46 and were stopped out at $11.79.