Life in the fast lane

05/23/19
  • Unusual call options activity in FAST yesterday
  • FAST has consolidated since pulling back from record April high
  • Stock is up roughly 24% on the year

With volatile tech stocks hogging much of the market spotlight lately amid never-ending trade-war drama, traders need to remember to keep an eye on other areas of the market—oh, say, on the industrial sector. And not just the household names, either.

Enter Fastenal (FAST), which makes a lot of things like nuts, bolts, washers, struts—you know, things that fasten—which puts the company in the industrials sector, an area of the market that has outperformed the S&P 500 (SPX) so far this year by about three percentage points.

The building materials sub-sector, though, has smoked the SPX, more than doubling the index’s roughly 14% year-to-date (YTD) return. FAST has certainly done its part: Yesterday it was up around 24% YTD, and that’s after pulling back nearly 11% from its April 24 record close of $71.35, when it was up 36.5% on the year:

Fastenal (FAST), 12/24/18–5/22/19. Fastenal (FAST) price chart. Consolidating after a pullback

Source: Power E*TRADE


FAST has consolidated for nearly two weeks since hitting its current pullback low on May 13, and yesterday it was trading toward the upper end of that range after bouncing off its lower boundary on Monday.

But the FAST’s price action yesterday morning—relatively quiet, like the majority of stocks before the FOMC minutes were released at 2 p.m. ET—wasn’t the thing that may have put the ticker on trader radar screens. Early in the trading session FAST was on top of the LiveAction scan for high call/put ratios, with around 171 call options trading for every put option:

LiveAction scan: Highest call/put ratios, 5/22/19. Unusual options activity. Big numbers in FAST calls

Source: Power E*TRADE


Turns out that 615 June $70 calls had crossed the tape—with no apparent comparable position in put options—which could mean that someone took a roughly $4 million bullish position (based on the stock trading around $64.90) on FAST options expiring in 30 days.

But you always have to look at trades from both sides: Yes, buying these call options could be considered a big bullish bet on FAST, but remember there was someone on the other side of that trade, possibly of the opinion that the stock wasn’t likely to reach $70 by the time the options expire on June 21.

Now we’ll see how these competing outlooks play out.

The average analyst price target for FAST is, in fact, a hair above $70,1 but that doesn’t mean the analysts are right, or if they are, that the stock is guaranteed to reach that level in the next month or so.

But short-term traders know that price volatility tends to be cyclical—that is, low volatility conditions are often followed by a swing to high-volatility conditions, and vice-versa—and since a consolidation represents a volatility reduction, traders may be anticipating momentum upsurge whenever FAST eventually breaks out of its current congestion.

There’s an old technical analysis saw that says, all else being equal, a market is most likely to exit a trading range in the same direction it entered it—which, in this case would be down. How far it follows through is another story. But stocks don’t move sideways forever.

Today’s numbers (all times ET): European Central Bank (ECB) minutes, New Home Sales (10 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Best Buy (BBY), Hormel Foods (HRL), Medtronic (MDT), Weibo (WB), Autodesk (ADSK), DXC Technology (DXC), Hewlett Packard Enterprise (HPE), HP (HPQ), Intuit INTU), Ross (Stores (ROST).

 

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1 TipRanks. FAST Fastenal Analyst Price Targets. 5/22/19.

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