Several oil and gas pipeline stocks had strong rallies heading into September and October, but have stagnated since then with the prices consolidating in triangle patterns. Triangles often indicate a continuation of the overall trend, but that is not all always the case. Breakouts in either direction are noteworthy for those already holding the stocks, or those looking to initiate new positions.
Canadian company TransCanada Corporation (TRP) bottomed at $28.40 in January and rallied to a $48.52 high in September. The overall uptrend, in play throughout the year, remains intact. Between August and the end of October, the stock ranged between $48.52 and $44.77. In November the stock dropped out of that range, moving below $43, but then quickly recovered and is once again trading inside the former range. In December, short-term resistance has formed at $46.29. A breakout above $46.29 signals a move to the top of the range at $48.52. A breakout above $48.52 provides a price target between $52 and $52.50. A more aggressive longer-term target is $54 to $54.50. A drop below $42.69, the November low, could signal the corrective phase is still underway with the price likely to head to $40 or below.
Williams Partners L.P. (WPZ) bottomed in February at $12.69 and rallied to a September high of $40.36. Despite the high in September, the stock has been moving mostly sideways since July. As of Dec.16, the stock is trading near the lows of that multi-month sideways movements. Investors that are bullish on the stock could consider a purchase between $35.50 and $33. That is a fairly large buying area, but the stock can easily move a dollar or more a day. Another option is to buy if the price rallies above $38, breaking the descending trendline that extends back to September. The latter trade provides a less favorable entry price, especially if the stock continues to range or drop. A drop below $32.80 indicates the corrective phase is continuing and the price could slide down into the $30 to $28 region. If the stock moves above $38, and ultimately $40.36, the target price is $45. A more aggressive target is $47 to $47.50.
Plains GP Holdings, L.P. (PAGP) has been a steady climber since it bottomed in February at $12.57. The stock hit a high in October at $36.59, fell to $28.84 in November and has since been ranging between those high and low points. If the price moves above $36.10 it is likely to test the October high ($36.59). Moving to a new 2016 high provides a price target of $43.75. If the price declines back below $32.50, it could test the $28.84 low. A drop below $28.84 is a more bearish signal, providing a downside price target near $25.
The Bottom Line
These oil and gas pipeline stocks have been moving sideways for some time now, following a strong rally early in the year. The early year rally will have many traders looking for a continuation of the trend and a breakout from these patterns. Moves to the downside must also be considered, as a breakout lower could signal a deeper correction. Investors can wait for a breakout to the upside, or buy near the bottom of these sideways periods. Consider placing a stop loss order below the ranges/consolidations to limit the risk if a downside breakout develops. Only risk a small percentage of capital on any single trade.
Disclosure: The author doesn’t have positions in the stocks mentioned.
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