In his second "Executive Decision" segment of Mad Money Wednesday night, Jim Cramer again sat down with Jim Cline, president and CEO of composite building materials maker Trex Co. (TREX) , which posted a four-cents-a-share earnings beat earlier this week, but also a revenue shortfall with subdued guidance. Shares of Trex have fallen 7% in the past week.
Cline said the Trex story remains strong and consumers still prefer Trex, with its 95% recycled content, over traditional building materials. He said the residential repair and remodel market continues to drive their growth.
Cline continued by saying that 2020 will be another growth year for Trex, but with demand outstripping supply, he's excited for 2021 when they're able to bring additional manufacturing capacity online. He said that despite new competition, Trex still only has one competitor and that's wood. Traditional wood products still account for over 84% of all decking materials sold.
In this daily bar chart of TREX, below, we can see that while prices are up so far for the year it has not been a smooth and easy ride. TREX had two major pullbacks from February to June that would have discouraged most buyers.
TREX recently broke to the downside and is trading below the cresting 50-day moving average line. The 200-day moving average line is still rising and intersects below the market around $75.
The On-Balance-Volume (OBV) line shows a bullish rising pattern from May.
The Moving Average Convergence Divergence (MACD) oscillator has been in a take profits sell signal from August and is now close to crossing below the zero line for a possible outright sell signal.
In this weekly bar chart of TREX, below, we can see that prices have nearly tripled in the past three years. Prices are above the rising 40-week moving average line. The slope of the 40-week moving average line could begin to weaken as older prices drop off from the calculation.
The weekly OBV line is showing us a significant bearish divergence as it is making a lower high when prices made a higher high. This divergence suggests that buyers of TREX are not as aggressive as they have been in the past and that is not a good sign for chart watchers like myself.
The MACD oscillator has narrowed and is poised to cross to the downside for a weekly scale take profits sell signal.
In this Point and Figure chart of TREX, below, we can see that the pattern here is generating a potential downside price target in the $72 area.
Bottom line strategy: The three charts (above) give me enough reasons to stay indoors and not go out on a TREX deck. Avoid the long side for now as we could get a better buying opportunity in a few weeks.