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Early Sell On FAST Stock Locked In Profit Amid Volatility


December hasn’t been easy for stock investors. So far it’s the most volatile month since September 2020, according to Dow Jones market data, and the most volatile December since the 2018 bear market in the fourth quarter. Add in rotation and trendless action and swing trading gets even more challenging. That’s why the early profit taking in FAST stock saved the trade.




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Swing Trading Example: FAST Stock

When listening to the growth stories on many stocks, it’s hard not to get excited by what previously seemed to be science-fiction. But even Darth Vader’s Deathstar needed construction materials to hold it together. That’s where Fastenal (FAST) comes in. At 14% annual earnings growth, it’s not huge, but FAST stock makes up for it with stability.

Despite its name, FAST stock isn’t the fastest mover. Its rally from the Oct. 14 follow-through day (1) saw a 10% gain in about a month and that’s unusually strong for Fastenal. Still, as the market got choppy, it was nice to have some less volatile names to help even out the back-and-forth action.

With the increased market volatility, Fastenal stock still held right around its 21-day line as it pulled back with the market indexes (2). By contrast, the Nasdaq composite and S&P 500 threatened their 50-day moving average lines.

When we added it to SwingTrader a couple of days later, we got confirmation of the strength from the trading volume and the relative strength line (3). Fastenal stock was also attractive just by being less volatile.

Selling Into Strength

Since FAST stock moves a little slow, we took our first profits quickly after getting over a 2.5% gain from our entry (4). The action looked normal as it found support at its shorter-term 5-day moving average line (5).

Our next line in the sand for profit taking was a 5% gain. But Fastenal stock fell just short of our goal before falling again a little more dramatically (6). Since the drop put FAST stock below the 5-day moving average line and nearly undercut the lows of the recent pullback, we removed the remaining position.

FAST stock seemed to find support at those prior lows and its 10-day line but the rally was short-lived and didn’t make much progress (7). Once Fastenal stock decisively sliced through its 10-day line (8), the damage continued. Had we held the stock our profits would have disappeared. As it stood, because of our sell into strength and quick exit, we walked away with over a 2% profit for the trade in just a week’s time. In a choppy market, it’s important to avoid taking big losses or too many small losses. Some small gains here and there not only help offset some losses but also put you in a position of offense should the market right itself quickly.

As for FAST stock, now that it tested its 21-day line again it can always be bought back for another trade.

More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.

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