Among the companies that are showing potential for continuing strength coming out of earnings season is Sunoco Logistics Partners (SXL).
Sunoco owns and operates an energy logistics business, consisting of a portfolio of complementary pipeline, terminalling, and acquisition and marketing assets which are used to facilitate the purchase and sale of crude oil and refined products. The company operates in four segments: refined products pipelines, terminal facilities, crude oil pipelines and crude oil acquisition and marketing.
Sunoco beat profit and revenue estimates, thanks in part to new crude pipeline projects. It reported earnings per share of $1.08 for the quarter, while revenue was up 30.1% year over year to $4.31 billion. Its distributable cash flow increased 8.9% year over year, and the company also recently raised its dividends, paying out $0.60 per share this past week ($2.40 per unit annualized).
Sunoco experienced a strong bull run into the beginning of March, continuing a larger weekly uptrend, but since then it has been trading within a channel just off those highs. This is not a new uptrend on the larger timer frames, but Sunoco still has room within the trend for another push higher, even if that push merely serves as a bull trap on the monthly time frame. The momentum within the channel itself has recently shifted. The pullbacks have become more gradual on the daily time frame, whereas the upswings have gained strength. This is a typical precursor to an upside breakout.
Additional technical support favoring a continuation breakout is the length of time of the weekly correction, which roughly correlates to the prior corrective periods in 2011 and early 2012. I would like to see a little more congestion along highs on a 90-minute time frame at this point to shift the downside momentum even further with a smaller trading channel on the daily charts as well at the current price levels to help support a strong break higher.
Alternately, two waves of correction intraday on the 90-minute charts that lead to a correction that is more gradual than last week's rally would also create price action that would lead to a break in the summer's highs. The odds are even higher if the volume declines as prices correct. So far, we have already seen that volume drop on the weekly time frame.
Many investors are cautious on master limited partnerships because of risk exposure from rising interest rates, but as a short-term play, Sunoco offers a lot of potential. It has a number of projects that will keep it busy in the near future, particularly those focusing on the transportation of oil and gas from its shale projects, and overall it is my favorite in its sector for near-term potential.
My initial target level as a swing trade for an upside daily breakout is $69.50. My time line for this position is no longer than about two weeks once a trigger occurs on the 90-minute charts, but it could certainly hit that level more quickly. Also note that analysts at Robert W. Baird increased their target level on the security from $65 to $70 on Tuesday.