'Clear bear channel' looms for refinery stocks: Trader

The rise in crude has oil stocks surging this year, but there's one group that hasn't participated in the rally: The refiners.

Shares of Valero, Tesoro and Marathon Petroleum have all fallen double digits in 2016—down 24, 29 and 26 percent respectively. Even worse for investors in those companies, the already dismal returns may lead to even more pain on the horizon, according to one trader.

Andrew Keene, CEO of AlphaShark, sees oil refinery stocks falling in the near future, even as many of them have gained some momentum from the February lows. One stock that could be in the biggest trouble is fuel manufacturer and transporter Valero, which Keene says has been in a steady downtrend since mid-March.

"The oil refiners are headed lower," he said.

Looking at both a daily chart and a weekly chart for Valero, Keene points out that the stock is on a "clear bear channel to the downside" with a downside target at the prior low $52. But Keene believes that Valero can very possibly fall even lower than that key technical level.

"We all know that support becomes resistance, so what I think is going to happen is Valero's going to test that support, not find buyers, and then head to $50," he said on CNBC's "Trading Nation" last week. That's more than 6 percent lower than where the energy stock is currently trading.

To play for a move lower in Valero, Keene is recommended buying the July 52.5/50 put spread, where he buys the July 52.5-strike puts to sell the July 50-strike puts for 70 cents.

Valero hit a year to date low in intraday trading on Friday, reaching $53 and inching closer to Keene's support line of $52.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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