Stocks Of The Day: Are Double Bottom Patterns Bullish For Valero, Marathon?

The shares of Valero Energy Corporation VLO and Marathon Petroleum Corp MPC have been crushed over the past month. Both have dropped nearly 20%. This is due to the sell-off in oil.

But they may be about to reverse and rally. This is why they are our Stocks of the Day.

Technical analysis is misunderstood by many analysts and traders. They try to identify patterns on charts without understanding the price action that causes them to form. But if technical analysis is viewed through the prism of psychology, it becomes much easier to understand.

As an example, double top and triple top patterns indicate a possible reversal. In a double top, a stock makes two peaks before reversing and heading lower. In a triple top, there are three peaks.

A peak can form at a price that was previously a peak because there are people who bought it who regretted doing so when the price dropped after. When the price returns to the peak price, they sell so they can exit their positions without losing money.

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If there are a large number of sellers, it will create resistance at the level once more.

The opposite of a double top is a double bottom. This is a reversal pattern that suggests the stock heads higher.

A stock can find a bottom at a price that was a bottom before. As you can see, it may be about to happen with both Valero and Marathon.

There can be support at a former support level because of regretful sellers. They decided their decision to sell while the stock was at support was a mistake when the price went higher. Many want to buy their shares back assuming they can pay the same price they were sold at.

As a result, when the price drops back to sell price, buy orders are placed. If there are enough orders, it creates support.

Sometimes stocks rally off of support. This is a common occurrence and may happen here.

Buyers may become aggressive and start to outbid each other because they don't want to miss out. This could result in a snowball effect that forces Valero and Marathon stocks higher.

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