NEW YORK (TheStreet) -- Valero Energy (VLO - Get Report) was one of the top 10 gainers in the S&P 500 on Tuesday, closing up 2.1% at $70.43 on above-average trade -- and the stock is poised to head even higher.
This move follows Monday's impressive breakout, which pushed Valero Energy more than 5% higher and into new high ground for the year. Considering the market's overall weakness Tuesday, the rally extension is very impressive.
With the gains so far this week, Valero Energy is up more than 10% from its late July lows. Despite this surge, shares remain well below overbought moving average convergence/divergence readings and are set up well for more upside.
The stock's ramp on Monday ended a month-long healthy consolidation that began shortly after Valero Energy reached new highs on July 14. After two days of solid gains that ended the consolidation, the stock has left behind layers of of support.
Valero Energy will soon test a key level as it begins to pierce $71. The stock's 2008 high sits at $71.12 and will likely attract some profit-taking.
A pullback from this area is to be expected, and for patient bulls, the result will be a low-risk entry opportunity.
Initial support for Valero Energy is near $68.25. The stock left behind back-to-back weekly highs last month after the powerful rally from the June low ran out of steam.
Valero Energy's lower support band is near last week's high of $66.33.
With a pullback similar to the pattern prior to Monday's breakout, this support zone should provide the footing needed for Valero Energy to mount a rally well past the $71 area.