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What Cues Should We Take from the Moving Averages of Oil Refiners?

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Jan. 13 2016, Updated 1:48 p.m. ET

Downstream companies are trading below their moving averages

As of January 12, 2016, refining companies Delek US Holdings (DK) and Alon USA Energy (ALJ) were trading 21% and 20%, respectively, below their 100-day moving averages. Delek has been in a continuous downtrend since July 2015, after it hit its 2015 highs. The stock formed a double top pattern in July and fell since then.

For the past six months, Delek’s stock has struggled to cross its 100-day moving average. On the other hand, Alon moved in a narrow range of $16–$18 since October 2015. After the US Federal Reserve’s decision to hike the federal funds interest rate in mid-December 2015, Alon’s stock began its descent to $14, where it stood as of January 12. HollyFrontier Corporation (HFC) is also trading below its 100-day moving average.

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Meanwhile, Phillips 66 (PSX) and Marathon Petroleum (MPC) were trading 6.4% and 8% below their respective 100-day moving averages as of January 12. Also, Valero Energy (VLO) and Tesoro (TSO) were trading 8% and 1%, respectively, above their 100-day moving averages, and Tesoro was trading below its 100-day moving average until December 29, 2015, at which point it crossed the moving average.

By comparison, the Energy Select Sector SPDR Fund (XLE) was trading 15% below its 100-day moving average. The above table shows these downstream companies’ moving averages and forward target prices.

Wall Street analyst consensus estimates suggest an upside

Wall Street consensus analyst estimates suggest that the ten major large-cap refiners might return 28% on average over the next 12 months. Frontline refineries Phillips 66, Valero Energy, Marathon Petroleum, and Tesoro could rise by 26%, 14%, 48%, and 19%, respectively, from their current levels.

By comparison, Delek, Alon, and CVR Refining could rise by 69%, 37%, and 11%, respectively, from current levels. In terms of current and forward PE (price-to-earnings) ratios, Delek, CVR Refining, and HollyFrontier are relatively cheaper than other downstream companies.

In the next part of this series, we’ll analyze the moving averages of midstream companies.

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