Home Depot Inc (HD) Stock Is Threatening to Fail Here

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Shares of Home Depot Inc (NYSE:HD) fell another 1% on Monday in what was a fairly muted session for U.S. stocks ahead of a big week of earnings and more Federal Reserve speakers. That said, HD stock has been flashing concerning signals for some time. While the stock’s primary multiyear trend thus far remains intact, the threat of a breakdown is increasing by the day.

Beat the Bell: Home Depot Inc (HD)Retailers such as Home Depot are important gauges for the economy, and more specifically, they provide insight into consumer health (and to a lesser extent, the state of the housing market). So when Home Depot stock or shares of close competitor Lowe’s Companies, Inc. (NYSE:LOW) begin to stall and rallies get sold, it’s time to sit up and take notice.

Note: While earnings season just kicked off, both Home Depot and Lowe’s won’t report results until mid-November. From a trading perspective, I find it less than favorable to hold stock or option positions through earnings announcements. While both of these companies could pre-announce either good or bad news, at least the earnings results are not due for another month or so from today.

Home Depot Stock Charts

Getting right to the price action, let’s look at the multiyear weekly chart. We can draw a well-defined uptrending channel in which HD stock has moved higher for years. Notably, though, Home Depot has largely stalled since about November 2015 and taken traders and investors alike on a rather wild ride of failed rallies. Each of the three major failed rallies has since topped out near the very upper end of the multiyear trend, as marked by the three red arrows.

While the big-picture trend continues to hold, this sideways movement and the three failed rallies is pushing on support. A break below there could send more investors out of Home Depot stock.

Home Depot (HD) weekly stock view
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On Home Depot’s daily stock chart, we see the three major failed rallied since late 2015 more closely. We also see that over the past month or so, another smaller failed rally has taken hold. This latest failed rally found resistance at its red 200-day moving average. Also note that the 50-, 100- and 200-day moving averages are now finally all pointing lower, which is a result of the 12-month sideways move and the series of failed rallies.

Home Depot (HD) stock chart daily view
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Active traders and investors could look to short the stock against the $130 area, using a first price target near $120. Risk is well-defined here. A push back above the recent lower high near $130 should force shorts to cover their bets.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/10/home-depot-inc-hd-stock-fail/.

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