Valero Energy Corporation (NYSE:VLO) had a quiet day yesterday after a 10%+ correction in two weeks. In the context of the tremendous rally the stock had in the last two months, more than 40% in just 6 weeks, the correction definitely looks just like a minor and natural pause. What the flat closing doesn’t show clearly that the stock had opened with a large gap down, but managed to recover all of that loss by the closing. Further trading now above yesterday’s high at $57.82 may signal a short term reversal on the upside.
The strength of Valero Energy Corporation (NYSE:VLO) emerges from the benefit only the refinery stocks, among all the energy stocks, are enjoying from the extremely low price of oil. Add to that the core focus of the company in refining and the huge size and the advantage over other peers are very clear. The refining capacity of the company being larger than all the competitors and extreme efficiency resulting in 95% utilization of its refining capacity in the last quarter doesn’t hurt either. One could add the advantages of geographical location and the ability to refine any kind of crude oil too.
Technically, the chart supports the fundamental strength. The long term channel visible on the weekly chart clearly shows the bull market the stock has been enjoying for the last few years. The characteristic of retesting the old swing highs after a breakout is well documented and that gives the investors excellent opportunities for entry.
The lower boundary of the long term channel was tested twice in the last 6 months and the bounce has been very powerful, suggesting the absolute domination of the bulls. Investors may use any dip to the band of $50-$55 for an entry as the long term bull market doesn’t show any signs of stopping any time soon.