Bulkowski's Valero Energy (VLO) Quiz

Look for the following chart patterns (If you find others, great!): complex head-and-shoulders bottom, broadening top, inverted and ascending scallop, descending triangle, falling wedge, potential triple bottom.

The stock has closed above the down-sloping line of the descending triangle, but it hasn't climbed above the confirmation point of the triple bottom. That would be the highest peak between the three bottoms.

Question 0: Do you wait for a confirmed triple bottom before trading?

Question 1: Do you buy, short, or avoid trading this stock?

Question 2: If trading this one, what is the target price?

Question 3: If trading this one, what is the stop price?

Answer 0 (wait for confirmation?): No need to wait. You have a buy signal from the triangle.

Answer 1 (buy?): The descending triangle has a confirmed upward breakout. Buy.

Answer 2 (target?): Look for overhead resistance. Where is it? Look at the left scale. See that 10? That represents round number support/resistance and price will stall there 22% of the time within 50 cents of 10 (9.50 to 10.50) and 42% will stop within a buck of 10.

I show overhead resistance at 10 (long green line) and at the old peak (short green line). Expect price to stop at the price level of an old peak 26% of the time.

Answer 3 (stop?): The flat bottom of the triangle is a good place for a stop, but is it too close? Volatility is a sedate 29 cents so a stop placed no closer than 8.79 (7% away) would help to prevent you from being stopped out on normal price movement. Volatility is 2 times average daily price range over the prior month. See volatility stop for more information.

You can see that it took price several months to push through the 10 level. Eventually it did and doubled. Notice that the bottoms of price in November 2003 (this chart) rest upon the March '03 peak (prior chart, short green line) marked by the red line (on this chart).

Price is trending down now.

Question: If you own the stock do you sell?

This is a chart of the RSI (relative strength indicator) during the same period as the prior price chart. It shows the indicator heading downward toward the oversold 30 line. I use 16 as a look back in the indicator, not the default 14, by the way.

This is the CCI (commodity channel index) and dual CCI indicator. The DCCI is a 5 period average of the CCI. The indicator is below 0, meaning price is heading lower, as if we couldn't see that from the price chart. The 0 crossovers are the important points along with crossings of the two lines. Those are the trading signals. Notice the prior -200 bottom in September (green circle) and what happened to price after that (it rose).

This is the MACD (moving average convergence/divergence) indicator. It shows price having downward momentum. Duh. But is it time to sell?

This is a simple trendline with price making a strong move below the line on high volume. If this were my stock, I'd probably sell. You could wait for the 1-2-3 trend change signal, which I've talked about before (click the link).

Price continued lower, bottoming at 15.90 after peaking at 19.71, a drop of almost 20%. Price then formed an ascending scallop (blue line) and moved to new highs, peaking at 58.63 (not shown). Remember when we were worried about 10 being overhead resistance? Patience is often the way to riches...or a bigger loss.