Home Depot Reports Under Negative Charts

The Home Depot, Inc. (HD) is the premier home improvement retail giant and is a component of the Dow Jones Industrial Average. The stock has recovered from correction territory but is still consolidating the 17.9% decline from its 2018 high of $207.60 set on Jan. 29 to its 2018 low of $170.42 set on April 4.

Home Depot shares closed Friday, Aug. 10, at $196.30, up 3.6% year to date and down 5.4% from the Jan. 29 high. The stock is up 15.2% from its April 4 low. By comparison, the Dow 30 closed Friday at 25,313.14, up 2.4% year to date and down 4.9% from its Jan. 26 high of 26,616.71. The Dow is 8.4% above its April 2 low of 23,334.52.

Analysts expect Home Depot to post earnings per share of $2.84 to $2.88 when the company reports quarterly results before the opening bell on Aug. 14. The home improvement company posted lower-than-expected revenue in the first quarter, but same-store sales were favorable. Poor weather in the first half of 2018 may have dampened home improvement projects. The question for the second quarter is whether Home Depot maintains its strong forward guidance. (See also: Home Depot Shares Are Under Accumulation.)

The daily chart for Home Depot

Home Depot has been above a "golden cross" since Jan. 19, 2017, when the stock closed at $135.39. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average and indicates that higher prices lie ahead. During the 2018 correction to $170.42 on April 4, the stock stayed just above its 200-day simple moving average of $170.23 on that day. The stock closed Friday below its 50-day simple moving average of $197.48. The horizontal lines show that the stock is above my annual pivot of $186.99, which was a magnet between Feb. 5 and June 1. The stock was briefly above my quarterly risky level of $202.20 between July 19 and July 24.

The weekly chart for Home Depot

The weekly chart for Home Depot will shift to negative this week if the stock closes Friday, Aug. 17, below its five-week modified moving average of $195.97. The stock is above its 200-week simple moving average, or "reversion to the mean," at $140.83. The 12 x 3 x 3 weekly slow stochastic reading ended last week declining to 74.09, down from 80.21 on Aug. 3 and falling below the overbought threshold of 80.00.

Given these charts and analysis, investors should buy weakness to my annual pivot of $186.99 and reduce holdings on strength to my monthly, quarterly and semiannual risky levels of $200.72, $202.20 and $217.54, respectively. (For more, see: Home Depot vs. Lowes: The Home Improvement Battle.)