Trade of the Day: Home Depot Inc (HD) Stock Is a Tale of 2 Timeframes

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Shares of both Home Depot Inc (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW) dropped sharply over the past few trading sessions and as a result have broken some important near-term technical support areas. HD stock in specific now is a classic tale of two time frames that allows traders and investors to clearly define their risk. This is my favorite type of setup for a stock.

HD Stock: Trade of the Day: Home Depot Inc (HD) Stock Is a Tale of 2 Timeframes

Every day in this column, I show two to three charts, each with a different time frame. It is this multi-time-frame approach that over the years has allowed me to gain great perspective on any single trading or investment setup and thus also constantly paint a good picture of the broader financial markets.

Many years ago, one of my former mentors used to remind me often that without perspective in the stock market, we are merely gambling. To this date, to me that remains one of the truest statements about trading the markets.

HD Stock Charts


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In that vein, let’s kick off today’s trading analysis on HD stock with a big-picture chart to gain perspective. From this multiyear view, we see that (to no great surprise from a trend-follower’s perspective), the stock’s recent weakness came just as it reached the upper end of the longer-standing trading channel.

From this angle, longer-term investors would be wise to lighten up on some long positions because better buying entries would provide themselves at the lower end of the channel.

To be clear, that does not mean HD stock has to immediately fall back to the lower end of this range around the mid-to-high $130s, but rather that the odds of an accelerated move higher from here are lower than they are at the lower end of the range.


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On the daily chart, we see that HD stock topped out on May 16 following its latest earnings report, in what was a classic pop and drop move. The greedy bulls tried to push the stock higher one more time, but quickly ran out of gas, only for the stock to quickly reverse back lower the following trading day. This was followed by a lower high in mid June and ultimately the confirmation selling week last week.

Last week’s selling also broke the stock below its up-trending channel from last November as well as below its yellow 50 day moving average for the first time since last November.

As a result, the near-term trajectory remains lower. Couple this with the context of the above chart and things don’t look rosy for the stock for the time being.

Thus, this becomes a tale of two time frames, which is to say that while longer term investors would be wise to remain patient to re-buy the stock, more aggressive traders and investors could attempt to play the stock from the short side for a trade. A next downside price target in the low $140s could be targeted, while any strong daily bullish reversal should act as a stop loss signal.

Remember, one can always get back into a trade if a stop loss gets hit. But not honoring predetermined stop losses is the single biggest contributing factor to losing portfolios.

Check out Anthony Mirhaydari’s Daily Market Outlook for June 27.

Take Serge’s quiz to find out which trading strategy best suits your personality.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/06/home-depot-inc-hd-stock-tale/.

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