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Technical Outlook: Refiners May Be Bottoming

Tesoro (TSO - Get Report) has been in a in a steady downtrend over the past eight months, but that might be changing as the price has started to consolidate and move sideways in the last two months. After a stock takes a dramatic drop, such as Tesoro has done, it takes time for the process to reverse. If the price breaks above $20 on increasing volume, it may be a signal that the downtrend has ended.

The second barrier is the resistance level around $30, which could send the price back down to test the $20 support area. If that happens, and the price holds, it could be a good time to add to positions. The bottom of the chart shows that the money stream has started to break out of its range and lead the price higher.

Click here for larger image.
Source: TC2000

Valero Energy (VLO - Get Report) is also trading in a sideways consolidation pattern and may be in the process of building up enough steam to move higher. However, the red trend lines indicate that the stock needs to break through quite a bit of resistance before the primary trend can change from down to up.

If that does happen, investors will want to see a sharp increase in volume along with the institutional money stream at the bottom of the chart moving higher to confirm the breakout.

Click here for larger image.
Source: TC2000

When stocks begin to form a bottom, it takes time for them to work their way through the resistance levels that have been built during the prior downtrend. Action can be choppy until the momentum builds up. The key of course is to keep protective sell-stops under the bottom of the trading range in case the stocks resume their prior downtrend.
At time of publication, Manning had no positions in stocks mentioned, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.
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