Valero Energy Drops 3.16% to $185.28; Bearish Engulfing Pattern Targets Key Support Levels at $182.61 and $177.24

Valero Energy (VLO) closed the most recent session at $185.28, down 3.16%, marking a bearish reversal from the prior session’s high of $192. The price action suggests a potential breakdown in momentum, with the candlestick pattern resembling a bearish engulfing formation. Key support levels can be identified at $182.61 (the January 9 low) and $177.24 (the January 6 low), while resistance remains at $192 (the January 8 high) and $191.84 (the January 9 high). The recent pullback may test these levels for confluence with other indicators.

Candlestick Theory

The bearish engulfing pattern formed on January 9, with a large real body

engulfing the previous day’s bullish candle, signals strong seller dominance. Additionally, the price has failed to reclaim the $192 resistance level, indicating a potential shift in sentiment. A breakdown below $182.61 could target the next support at $177.24, with a bearish continuation expected if the price closes below this level.

Moving Average Theory

The 50-day moving average (approximately $175–$180 based on recent data) appears to be below the 200-day moving average, suggesting a bearish trend. The 100-day moving average may currently align closer to $180, providing a dynamic support level. A crossover of the 50-day MA below the 200-day MA would reinforce the bearish bias, while a rebound above the 100-day MA could indicate short-term stabilization.

MACD & KDJ Indicators
The MACD histogram has turned negative, with the MACD line crossing below the signal line, confirming a bearish momentum shift. The KDJ (Stochastic RSI) indicates oversold conditions, with the %K line dipping below 20, suggesting a potential rebound. However, a divergence between the KDJ’s %D line and price lows (e.g., lower price lows with higher %D values) may signal a weakening bearish trend, hinting at a possible reversal.

Bollinger Bands

Volatility has expanded recently, with the bands widening as the price approached the upper band on January 8. The current price of $185.28 sits near the middle band, indicating neutral positioning. A move below the lower band would confirm oversold conditions, while a rebound to the upper band could rekindle bullish momentum. The contraction of the bands in late December suggests a period of consolidation before the recent breakout.

Volume-Price Relationship

Trading volume surged to 5.47 million shares on the recent decline, validating the bearish move. However, the volume on the January 8 rally to $192 was higher (5.96 million shares), suggesting stronger conviction in the prior bullish phase. A further drop below $182.61 with increasing volume would strengthen the bearish case, while a surge in volume on a rebound could indicate short-covering or a reversal.

Relative Strength Index (RSI)

The RSI has dipped below 30, indicating oversold conditions, but caution is warranted as the indicator has shown divergence from price action. For instance, the RSI failed to reach overbought levels (above 70) during the January 8 rally, suggesting waning bullish momentum. A sustained close above $190 may push RSI above 50, but a failure to do so could prolong the bearish trend.

Fibonacci Retracement

Key Fibonacci levels from the $177.24 low to the $192 high include 23.6% at $185.40 and 38.2% at $182.40. The current price of $185.28 is near the 23.6% retracement level, acting as a potential support. A breakdown below the 38.2% level would target the 50% retracement at $179.60, aligning with the 50-day MA as a critical threshold.

Confluence and Divergences
The bearish engulfing candlestick pattern aligns with the RSI entering oversold territory and the MACD confirming bearish momentum, creating a confluence of short-term selling pressure. However, the KDJ’s divergence and Bollinger Bands’ neutral positioning suggest potential for a countertrend bounce. A key divergence exists between the volume on the January 8 rally and the recent decline, indicating weakening bearish conviction. Traders should monitor the $182.61 support level for a potential breakdown or a rebound, with the 50-day MA and 38.2% Fibonacci level offering critical decision points.

Probabilistic Outlook

While the near-term bias remains bearish, the oversold RSI and KDJ divergence suggest a 40–50% probability of a short-term rebound before further downside. A sustained close above $190 would invalidate the bearish scenario, while a close below $182.61 with increasing volume would strengthen the case for a continuation of the downtrend.