Trade of the Day: Home Depot Stock Looks to Build on Gains

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Shares of consumer discretionary stocks and home builder (and related) stocks have done well so far this year and are increasingly acting as if more upside is to come. What do those two groups of stocks have in common you ask? A stock like Home Depot (NYSE:HD) is both in the consumer discretionary sector of the S&P 500 but also closely tied to home building stocks when it comes to many ETFs. I like HD stock higher here.

Most things in finance worth paying attention to happen at the margin and in relative terms. As it relates to the stock market what makes me sit up and take notice is when a sector, group of stocks or even an individual stock flashes notable relative and absolute strength or weakness.

HD Stock Charts


Click to Enlarge
Source: Charts by TradingView

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

When looking at Home Depot stock, and particularly when we take into consideration how the broader home builder and related stocks are acting, I definitely perk up at this juncture.

For some perspective, let’s first note that in the big picture, HD stock on the longer-term chart remains in a very steep up-trend that began in the year 2012. While ultimately this up-trend could change, from a trading perspective through the lens of a few weeks to a couple or months or so, I want to still respect it.


Click to Enlarge
Source: Charts by TradingView

 

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily chart, we see that HD stock’s sharp January-February rally took a much needed breather in March. During that consolidation phase, the stock pulled back to a confluence support area made up of the blue 100 day simple moving average as well as the 38.2% Fibonacci retracement of the rally from the December 2018 lows up to the February highs.

Over the past few trading sessions HD stock along with a slew of home builder stocks began to lift again. HD stock for its part is now fighting with its red 200 day moving average, which currently roughly lines up with the stock’s February highs.

In my eyes, HD stock’s path of least resistance in the near term is higher, toward the round $200 price target. Any sharp bearish reversal lasting on a weekly closing basis below the $182 area would be a stop loss signal.

While one could consider buying HD stock here based on the above analysis, my preferred way to express a quasi bullish view in said stock now is with a specific options strategy that also allows be to generate income.

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