Monday, March 19, 2007

Valero Energy (VLO)

Crude Oil ($WTIC) will stay in a trading range between 55 and 65 for the near future. A serious recession could take the price below that trading range, but not for more than 1-2 quarters.

The Oil Refiners still look interesting, relatively speaking, particularly when oil trades at the low end of its trading range. One name that Citi likes is Valero Energy (VLO) for reasons of (1) margin dynamics and (2) multiple new projects coming on-stream in 2007.

VLO ($60) hit cycle lows in Sep 2006 and Jan 2007 with RSI-7’s down at 30. But the next cycle low, where the Weekly-Daily RSI-7 is down to about 30 for VLO, be a buyer. VLO might be down to $48.

Citi has 12-month Price Target (PT) of $71 for VLO. If you catch the $48 price, and sell at the PT that would mean a Return (excluding dividends) of +48 pct respectively.

In the previous Bear, XOM dropped from a peak of about $50 to a low of about $30, which is a drop of -40 pct. If, in the next Bear, XOM drops from a high of $79 to $50, that would be a drop of -36.7 pct from peak to trough.

Where do you think the M-W-D RSI-7 values are likely to be when XOM hits a multi-year cycle low of $50? Yes, those RSI-7’s will be under 30 across the board. Buy stocks of sound companies when at attractive prices (ie. Accumulation Zone), and to sell when they are over-bought (ie. Distribution Zone).


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