We’re deep into earnings season now, and with that excitement comes heavy scrutiny from bulls and bears. Today, I’d like to look at how this hype might affect the following home improvement stocks: Home Depot (NYSE:HD), Lowes (NYSE:LOW) and Tractor Supply (NASDAQ:TSCO).
It’s no secret the financial media is in the business of keeping the story lines flowing and updating investors as to why Wall Street was acting gloomy or gleeful on a particular day. Uncertainty on interest rate policy and the U.S.-China trade war have been popular topics. And it’s understandable why battling with China and interest rates matter to big box retail suppliers HD, LOW and TSCO stock.
For one, there is a whole lot of “Made in China” going on in Home Depot and its peers. As well, financing and whether we’re willing to even think about that latest home project goes hand-in-hand with what’s happening with interest rates. But it’s not the only thing making Home Depot and its peers move on any given day.
Now and with earnings season in full swing, the attention has shifted to the latest and greatest or maybe less-than-great earnings reports such as Caterpillar’s (NYSE:CAT) ugly earnings miss. And as with those broader uncertainties, this type of information is bound to be projected onto the likes of HD, LOW and TSCO stock. I get it.
And as Wall Street’s collective fears and cheers get priced into these retail supply stores, the price charts suggest it’s time to ring the register in HD and LOW stock and continue shopping at TSCO. Here’s more about each.
Home Depot (HD)
Home Depot shares have enjoyed an incredible bull market since the financial crisis. As they say though, all good things must come to an end. And that could very soon be the case with HD stock.
Right now Home Depot stock’s monthly chart is establishing a broadening top pattern. It’s bearish, but even more so given the rally in shares, as well as a fairly bearish-looking stochastics set-up that’s supporting lower prices in the weeks and months ahead.
HD Stock Strategy: For shorting HD stock, I’d recommend waiting until next week. The July candle in shares is shaping to complete as a doji pivot high within the broadening pattern. By waiting until August, this bearish entry can receive a bit more price confirmation than otherwise.
I’d look to the pattern low near $140 for a downside target and use a breach of a fully formed July candlestick for containing upside risk.
Lowes is yet another name where investors who are long shares should take profits or consider shorting the stock. The writing isn’t entirely on the wall for LOW stock. Still, a weakening monthly up-channel where shares failed at the pattern’s mid-line and a canary-like stochastics set-up suggest a larger bearish correction is on its way.
LOW Stock Strategy: For shorting LOW stock, I’d also suggest waiting until next week and let July run its course. With shares forming a bearish shooting star doji on the monthly chart, confirmation to short LOW is likely to occur early next month.
I’d recommend using a stop-loss above the high of the doji to contain risk and not overstay the position in the event the up-channel isn’t finished.
Tractor Supply (TSCO)
Not that I’m saving the best for last, but retail improvement outfit Tractor Supply does have a lot going for it. As the smallest of the discussed supplies chains, TSCO stock logically has the largest opportunity for future out-sized growth if it can move into untapped markets or penetrate existing markets further.
There are no guarantees TSCO stock will live up to this potential. Still, the basic law of large numbers does afford Tractor Supply more room to grow than HD stock or Lowes. And of the three chains, TSCO is the only price chart whose shares are powering higher out of a durable and constructive-looking corrective base.
TSCO Stock Strategy: Go long TSCO stock today. With earnings slated for tomorrow, I’m estimating a solid technical catalyst already in motion. And with room to rally, it will have some of its own headline-driven assistance as support.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.