Calumet Technicals Attracting Attention

 | Nov 13, 2013 | 2:00 PM EST
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Calumet Specialty Products Partners, L.P. (CLMT) offered us a look last Wednesday at their third quarter earnings. On the surface, the picture it painted looked fairly grim. Calumet had posted a $42.4 million profit a year ago and then came in last week with a reported loss of $34.8 million. This came out to $0.53 per share. A profit of $0.11 per share had been anticipated.

Calumet Specialty Products Partners, L.P., is a producer of specialty hydrocarbon products in North America. Its goods include customized lubricating oils, white mineral oils, solvents, petrolatums and waxes. It also processes crude oil into a range of fuel and fuel-related products, such as gasoline, diesel and jet fuel.

Shares were down 10% the following day on the heels of its earnings announcement. Despite these heavy losses, Calumet is now at a level that it has once again caught my attention.

From a technical standpoint, Calumet has traits that favor a move higher off its current level. Throughout most of 2013 Calumet has been in a corrective mode. It has a 52-week range of $25.00 to $40.25. It is currently trading near the end of that range, just off $27 a share as we headed into Wednesday's session. The low of $25 hit as a result of the earnings selloff.

This selloff, however, was the third push to the lower end of this weekly and monthly correction. This has created trend exhaustion with the news serving to flush out remaining weak hands. A third slightly lower low, such as seen on the daily and weekly time frame, is typically followed by a longer period of correction to that selloff, whereby prices recover through time, price, or (most commonly) both.

Compared to earlier in the year, the pace of the downtrend channel has also shifted. Stronger recovery attempts have taken place since this summer, with several rallies back to the 30s. The most recent low has coincided with strong price support, not only from the $25 whole number support, but also the 2010 and 2011 highs, the 61.8% Fibonacci retracement level off the highs of the late 2011 – early 2014 rally, and the 76.4% Fibonacci fan based upon that same uptrend. These levels have combined to create a price point in Calumet that will be difficult to penetrate in the near-term. An immediate target based upon this smaller correction off support alone would be $31/share.


Now let's look at some of the details on Calumet itself. While it did fail to hit its earnings target this quarter, it still posted strong revenue and surpassed expectations by $160 million. The shortfall in earnings has been attributed to the substantial tightening of margins due to higher input costs. Some of these costs are expected to be alleviated in the current quarter due to the declining price of crude oil and improving operations at several facilities in Montana and a recently-acquired San Antonio refinery.

In order to breech my $31 price target though, Calumet will need a little assistance. While crude has been on the decline, which will help Calumet widen its margins, crude is nearing support of its own. $USO, the United States Oil Fund, is currently trading at just under $34/share with strong support on the monthly time frame between here and $33.


Meanwhile, a rise in the price of gasoline and other products produced by Calumet would also be beneficial. Gasoline prices have indeed been on the rise throughout November and they are coming off major weekly support levels. They are striking near-term resistance heading into mid-November, and a retracement is likely. However, the charts currently suggest rising prices into the new year, which would assist Calumet in hitting a longer-term goal of $36.50/share. I believe this is achievable within the next 12-18 months.

Calumet's dividend yield stands at 10.27%. In addition to Calumet, other securities in its sector worth taking a look at include Tesoro (TSO), Dalek US (DK), and Western Refining (WNR).

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