Technically, you should buy Western Refining right now.

We examined Western Refining (NYSE: WNR) using Moving Average Convergence-Divergence (MACD), which is one of the most popular and long-used technical analysis indicators. Technical analysis is the field of buying and selling stocks not based on the underlying merits of a company, but rather on the patterns and formulas around its price movements.

There are many ways to interpret MACD, but a common interpretation is signal line crossover. Signal line crossover uses a series of moving averages (in this case, nine, 12, and 26 days) to look for bullish and bearish crossovers that indicate a stock has momentum in one direction or another. Below, you'll find a current chart of Western Refining's MACD profile:


Confused? Well, that's preposterous! How could you ever be confused by something as simplistic as a Moving Average Convergence-Divergence chart! Even though we're jesting, this is actually one of the simpler methods for technical analysis.

Still, if you'd strictly followed the rules, seeking out upward and downward momentum, you would have seen the stock move between buy and sell categories a fantastic 16 times!

Here at Fool.com, we're more interested in other measures of company value. When we look at Western Refining and its peers, here are the areas that interest us:

Company

Western Refining

Alon USA Energy (NYSE: ALJ)

ConocoPhillips (NYSE: COP)

Valero Energy (NYSE: VLO)

Market Cap (billions):

$0.42

$0.33

$85.62

$9.60

Qtrly Rev Growth (yoy):

35.50%

(24.5%)

31.50%

25.70%

Revenue (TTM, billions):

$7.92

$3.46

$160.07

$77.98

Net Income (TTM, millions):

($0.12)

($0.19)

$9.46

($0.97)

Source: Yahoo! Finance and Capital IQ, a division of Standard and Poor's; TTM = trailing 12 months.

We prefer to look at the fundamental drivers of value. Investors should closely watch statistical fields like return on equity, as well as qualitative values like competitive advantage and managerial effectiveness. These areas led investors like Warren Buffett and Seth Klarman toward decades of outperformance. Buying and holding great companies is the best solution for individual investors to build lasting wealth and achieve their financial goals.

So when you look at Western Refining, don't evaluate it for crossing a momentum line. Buy or sell it because:

  • Western Refining has been brutally beaten down, along with other refining peers. Western had the unfortunate timing of swallowing up Giant Industries for $1.2 billion right before the refining industry went into a prolonged downturn. The acquisition increased Western Refining's capacity by 85%, but left it with a poor balance sheet. In recent quarters, the company has had to slash capital expenditures, as losses mounted and the company burned through its available cash.
  • At this point, Western's fate is largely tied to the future direction of the larger refinery industry. If refining makes a quick recovery, Western has valuable assets. However, its poor balance sheet means the company will face significant bankruptcy risk if the industry has an extended down cycle. With experts predicting overcapacity problems in the refining sectors at least through the middle of next year, Western isn't out of the woods yet.
  • However, in a pinch, the company still has assets to sell off to relieve balance sheet pressure. With the stock trading at less than two times its earnings from 2007, Western Refining could offer some of the best returns in the refining sector, if you believe in a scenario where demand bounces back swiftly in the coming years.

Want to buy Western Refining based on technical merits today? Technically, odds are that you should flip and sell Western Refining sometime very soon. If that sounds like madness to you, well, we here at the Fool agree. In every market decline, technical analysis gets its share of proponents. The cries that "Buy-and-hold is dead!" get louder, and individuals race toward schemes that promise greater wealth in a shorter amount of time.

I don't deny that technical analysis could make investors money. In any random short-term transaction, you're essentially playing a 50/50 game of chance. However, at the same time, most technical analysis schemes are a relative simple science: eliminating the vast complexities of evaluating true company value. It's an attractive theory, but one that is ultimately the wrong path for individual investors. Technical analysis relies on long-held beliefs about exploiting momentum and consistent patterns throughout the market.

However, with up to 75% of market trading now done by Ph.D-level programmers at massive high frequency funds, even if opportunities existed, what chance does an individual have to sniff these deals out? With so much volume now driven by these funds, how can you be certain the same rules of patterns still even exist?

I could also point to research, including Massey University's study across 49 countries, which showed that more than 5,000 trading rules add no value. However, the real reason to forget about technical investing is what we mentioned earlier. Western Refining crossed the crossover 16 times across the past year! The amount of trading in most technical analysis schemes eats away at profits. More importantly, it takes away from the idea of holding a portfolio of great companies that can accrue wealth over a long time horizon.

That's why at Fool.com, we recommend that individual investors establish a portfolio of well-managed companies with strong advantages over their competitors. In the end, we find that to be the best contributor to long-term wealth. More importantly, it'll spare you having to sit bleary eyed in front of a computer with a Big Gulp full of coffee, frantically buying in and out of companies. That's the kind of future we're looking for. However, if your idea of protecting your future is charting the ups and downs of Moving Average Convergence-Divergence charts, then Western Refining looks like a buy right now. Just don't expect to hold it for very long.

Jeremy Phillips owns shares of no companies listed above. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.