(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Home Depot Inc. (HD) shares are nearly 14.5 percent off their highs, and signs are pointing to the stock falling even further. Analysis of Home Depots charts shows the home improvement center could drop an additional 10.5 percent, to nearly $159, or roughly 23.5 percent off its recent and all-time high of $207.60. That would put the stock firmly into bear market territory. 

The stock has come under pressure since the company reported fourth-quarter earnings that beat expectations by nearly 3 percent, while revenue beat estimates by about 1 percent, according to YCharts. But margins for Home Depot declined sharply during the quarter, with net income margin coming in at only 7.4 percent, its lowest level since the fourth quarter of 2015.

Failing To Recover

Home Depot has failed to recover any of the losses from the February sell-off and is currently sitting at roughly $177.50. It seems investors have decided to look for other investments options, shying away from Home Depot. Since February 9, the S&P 500 has rallied by over 4 percent, while Home Depot stock has declined by nearly 3.6 percent. 

Bearish Pattern

Home Depot's 15-minute chart, shows the stock has had an incredible amount of selling pressure on it since January 26. The chart shows a bearish descending triangle pattern, which would suggest the stock is likely to continue to fall in the coming days to weeks. The area of support that it is most likely to fall rests around $159.50. (See also: How Do Traders Identify Descending Triangle Patterns?)

 

Not Oversold

The daily chart also shows declining amounts of volume over the past few weeks, which could also suggest there is less interest in shares of Home Depot. If buying interest declines, it could put further pressure on the stock if sellers are still representing the majority of the daily volume.

Additionally, the relative strength index (RSI) has not yet reached oversold levels, with a reading currently around 36. The RSI would have to fall below 30 before the stock could be considered oversold. 

Also, a potential headwind for shares are estimates for earnings growth of nearly 27 percent in fiscal 2019 to $9.47. The significant earnings gains are expected to come on a revenue rise of only 6.8 percent, bringing total revenue for the year to $107.76 billion. But the recent quarterly results showed margins had been weak, and that may make getting to such a significant earnings rise more challenging, even if Home Depot sees a considerable benefit from the new tax laws. 

For now, the outlook for Home Depots stock doesn't look all that positive, and the risk of a push into bear market territory may be rising. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.