Trade of the Day: Home Depot Inc (HD) Stock Has Something for the Bulls
Shares of Home Depot Inc (NYSE:HD) as of last Friday are higher by about 19% for the year-to-date. While the stock does to me look overbought through the intermediate-term, in the near-term, more upside toward a well-defined target is very possible. Traders take note.
Source: Mike Mozart via Flickr (Modified)
When I last offered my thoughts on HD stock on Sept. 7, I said the following: “From a technical analysis perspective as well as taking into account the devastating potential effects of current hurricanes in the United States, HD stock could indeed see a continuation of this breakout toward the $165 area. This breakout, however, does not have to take place in a straight line and any sharp bearish reversal could call off the bullish trade setup for the time being.”
Since Sept. 7, HD stock has largely consolidated sideways and as a result now looks even more primed for another move higher.
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HD Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Nothing has changed in the multiyear up-trend, which is to say that HD stock remains firmly trending higher in this time-frame, but also is trading near the upper end of the range. As such, the current juncture in my eye is not a great spot to accumulate new longer-term positions in Home Depot, but rather one where some partial profit taking of longer-term positions makes sense through the lens of sound risk management.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Over the years, as an active market participant I have found that a clear separation of time-frames when it comes to trading and investing is one of the most important aspects to success. As such, despite the above longer-term picture in HD stock in my eye signaling an overbought reading, on the daily chart things look much different.
On the daily chart, we see that HD stock in July put in an important higher low that however was not confirmed until the stock broke past the black diagonal resistance line on Sept. 6.
Through the lens of technical analysis, we could furthermore detect an “inverse head and shoulders pattern” with the black diagonal line being the “neckline” of the formation. This is to say that the breakout on Sept. 6 would just be the beginning of another leg higher. In other words, the mini consolidation phase that HD stock has been in since September 8th looks to be just a pause within a new leg higher toward $165 and possibly $170.
Given that we are nearing a typically more volatile period for stocks in late September through October, I would however also point out that any notable bearish reversal in HD stock on a daily closing basis would need to be respected for any long-side swing trades and be a significant warning stop loss warning signal.
Check out Serge’s Daily Market Outlook for Sept. 25.
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