Fastenal's Charts and Fundamentals Are Locking Horns

 | Jun 05, 2017 | 10:20 AM EDT
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Fastenal  (FAST) has attracted a number of fundamental upgrades or new coverage by sellside analysts recently. Unfortunately, these sellside shops no longer maintain technical analysis departments. Most CFAs don't believe in technical analysis to begin with, even though there are a few questions about the subject on the CFA exams.

If these analysts ventured over to the dark side of technical analysis, they might not be as bullish. Let's examine the latest charts and indicators on FAST and see if these two approaches are on the same page.

In this daily bar chart of FAST, below, we can see prices broke to the downside in April. Prices closed below the 50-day moving average line and by mid-April, the slope of the line had turned negative (bearish). FAST also gapped to the downside in April on heavier-than-normal volume, indicating that sellers had turned more aggressive. Prices continued lower and closed below the 200-day moving average line. The 200-day line acted as resistance in April and May -- and even during the Friday rally.

The daily On-Balance-Volume (OBV) line has been on the defensive since early April, telling us that prices are not attractive enough to generate more aggressive buying. There is a bullish divergence in April and May, as the momentum indicator made higher lows compared to prices making lower lows. This divergence tells us that the decline has slowed, but it is not a buy signal as such.

In this weekly chart of FAST, above, we can see that prices are below the flat 40-week moving average line. It will take a weekly close above $46 to put FAST above that line. The weekly OBV line has been on the defensive since January and suggests that sellers have been slightly more aggressive all year. The weekly Moving Average Convergence Divergence (MACD) oscillator crossed to a take-profits sell signal at the beginning of April and is currently crossing the zero line for an outright sell signal.

In this long-term Point and Figure chart, we have what I think is a major top formation. Yes prices did make an important upside breakout in January -- at $49 -- but by April, prices had reversed and turned down. If we temporarily ignore the breakout over $49 and look back over the price action since 2012, and run an imaginary line across $42, we find that there is more activity (Xs and Os) in the upper half of the chart. More action in the top half means that there has been more attempts to move higher that haven't worked, or more failures. This is not positive price action.

Bottom line: Prices did make an interesting pop to the upside Friday, but until I see a sustained uptrend in the OBV line along with a positive slope to the 50-day moving average line, I don't see any technical reasons to embrace the long side.

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