The American industrial supplies company based in Winona, Minnesota, Fastenal Company (NASDAQ: FAST) seems to be gearing up for a price surge according to its latest charts.
#1 Symmetrical Triangle Pattern: A symmetrical triangle pattern is currently being formed in the daily chart of the stock as shown below. This pattern is marked in orange color lines. This is usually formed when there is an indecision in the price movements and uncertainty among the buyers and sellers. The pattern represents a period of consolidation before the price breaks out or breaks down. Once the stock breaks out of the symmetrical triangle pattern, it usually signifies the start of a new bullish trend.
#2 Bullish Stoch: The %K line of the stochastic is currently above the %D line, indicating possible bullishness.
#3 Falling Wedge Pattern: As you can see from the daily chart, the stock has been forming a falling wedge pattern for the past several weeks. This pattern is marked as blue dotted lines.
Once the stock breaks out from the wedge, it could move higher.
#4 Oversold RSI moving up: The RSI is currently moving up after reaching oversold levels. This is a possible bullish sign.
#5 Bullish ADX: The ADX line is starting to move up from below –DI and +DI lines.
The +DI line is also currently above –DI line. This indicates possible bullishness.
#6 Flag Pattern: As you can see from the weekly chart, the stock was in a strong uptrend after which it started consolidating and was in a narrow range.
This is a classic flag pattern and is marked in the chart in pink color. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case). Typically, a retest of the flag pattern’s breakout level happens before resuming the trend.
#7 Bullish RSI: The RSI is currently moving up after reaching oversold levels. It has now reached near 50, indicating possible bullishness.
#8 Bullish Stoch: The %K line of the stochastic is currently above the %D line in the weekly chart as well, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level for FAST is above the resistance level of $31.50.
TP: Our first target price is $37 and the second target price is $45 in the next 4-6 months.
SL: To limit risk, place a stop loss at $28.10. Note that this stop loss is on a closing basis.
Our target potential upside is almost 17% to 43% in the next 4-6 months.
For a risk of $3.40, our first target reward is $5.50 and the second target reward is $13.50. This is a nearly 1:2 and 1:4 risk-rewards trade.
In other words, this trade offers nearly 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the symmetrical triangle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.