Caltex Australia Limited (CTX)

One of the fundamental tenets of technical analysis is that history repeats itself on a stock chart. A sterling example of this tendency is currently seen on the chart of Caltex Australia Limited (CTX).

Caltex Australia was formed in the Second World War as a joint venture between Texaco and Standard Oil of California, with the intention of supplying petroleum products to the U.S. armed forces stationed in Australia and New Zealand. Currently the company is owned 50% by Chevron (formerly ChevronTexaco) and 50% by Australian shareholders.

With 30% of the market share, Caltex Australia is the largest network of oil company retail outlets in the nation, including convenience shops and the Woolworths joint venture.

Like those of other oil companies, the stock CTX ebbs and flows not only with company fundamentals and technical influences but also with the price of crude oil. The stock’s P/E ratio is 9.83 and EPS is 1.16.

After touching a low of 6.18 in late December 2008, CTX rebounded strongly, only slowed briefly in May 2009 by a previously-set support-resistance level at 11.00. After consolidating between 11.50 and a reaction high at 14.00, reached early July 2009, CTX retreated back below the 11.00 level in October 2009, as shown on the daily chart, below:

On the more detailed chart, below, it’s tempting to call the series of peaks through the middle of 2009 a head and shoulders formation. But drawing trendlines above and below shows that it could instead be considered a symmetrical consolidating triangle, with pressure building to the downside as evidenced by the greater number of price bars on the lower support line as opposed to the upper resistance line.

In either case, following the consolidation period, the stock declined through the support base of the triangle, rose to re-test that base from below as resistance, and then fell back below the support-resistance level at 11.00 almost as fast as it originally climbed through it, below:

Currently the stock CTX has shown signs of repeating that pattern. Starting at 8.00 in December 2009, it crept back toward the 11.00 level over the past three months, with one major pullback of greater than 50%, and in trading last week it broke through 11.00 once again, reaching its most recent high of 11.72 on Friday, 12 March.

The break of resistance makes CTX an immediate buy. On the longer-term chart, note that the December 2009 low of 8.00 is a higher low than the previous low of 6.18 set December 2008. This may give CTX an underlying upward trend, and the high to be set by this most recent break above 11.00 may be a higher high than the 14.00 set in July 2009.

Another scenario could see a lower high than 14.00, which could signal an underlying long-term (greater than two years) consolidating triangle. The third possibility, a duplicate of the high at 14.00, could indicate an ascending or bullish continuation triangle.

technical analysis by Craig Liles