Bulkowski's The Tesoro Exit

Written and copyright © 2009-2011 by Thomas N. Bulkowski. All rights reserved.

This article discusses an actual trade I made in Tesoro Corporation (TSO).

The Tesoro Exit: The Buy

I show the chart of Tesoro (TSO), which is a west coast oil refiner, on the daily scale.

I took interest in the stock in mid August and added it to my watch list. Three days after adding it to the list, I pounced and bought, receiving a fill at 13.30. The buy reason was a head-and-shoulders bottom with a breakout from a small congestion region. I show that chart pattern as LS (left shoulder), Head, and RS (right shoulder). A blue neckline connects the armpits.

If the armpit were to slope downward from left to right, a buy signal triggers when price closes above it. For up-sloping necklines, I use a line horizontal to the right armpit. I show that as a horizontal red line in the picture. The reason for the two methods is that with up-sloping necklines, if they are steep enough, price will not close above it. You can see the price difference between the two entry points (the intersection of price and the red and blue lines).

In the picture, I show the location of the buy and the congestion area is the prior week's horizontal price movement. Yes, it's hard to see in the chart. Do not adjust your reading glasses.

Price moved up and I wasn't concerned with the stock forming peaks because I wanted to hold this until it reached my target of 20, then 30, then 50. That's not a pipe dream, because it represents overhead resistance areas and is still possible for a long term holding (like 2-3 years).

The Tesoro Exit: The Sale

Unfortunately, the fundamentals changed and the stock is no longer a good investment. What happened? The company reported on November 9 that they were cutting the 10 cent dividend in half and that due to weak demand and maintenance, they could drop capacity to 77% in Q4 (fourth quarter). That told me that business is weak and will remain weak.

If the fundamentals are weak, then the stock will likely tumble, perhaps to 10. Since I had a small profit, it was time to exit.

I sold the stock at the open and received a fill at 13.86 for a 3.8% gain. Had I waited until the end of the day, I would not have had a profit at all (the stock dropped over 4% the day I sold).

The moral of the story is this: When the technical or fundamental picture changes, sell. And sell immediately.

The Tesoro Exit: Aftermath

Here is a zoomed in look at Tesoro on the daily scale, about a month after the trade ended.

I show the day and price (at market open) at which I sold the stock.

Notice that the stock has continued to drop. The chart shows a recent low price of 12.40, well below the 13.86 at which I sold. That is about an 11% drop.

The stock's down move reinforces the belief that I was right to sell the stock when I did.

-- Thomas Bulkowski

Written and copyright © 2009-2011 by Thomas N. Bulkowski. All rights reserved. Hummingbirds never remember the words to songs.