Home Depot Gets Hammered As Gross Margins Decline Year-Over-Year. Here’s How To Trade The Stock Now.

Home Depot (HD) beat earnings-per-share estimates for the seventh consecutive quarter before the opening bell on February 22. Sales remained strong for home improvements, but primarily because of higher prices. This resulted in a year-over-year decline in gross margins.

The stock is down 23.8% year-to-date and is 24.8% below its all-time intraday high of $420.61 set on December 6, 2021. It’s still up 28.2% from its March 5, 2021 low of $246.59.

Weakness has shares of Home Depot fairly priced. Its p/e ratio is 23.05% with its dividend yield at 1.90%. The stock has beaten earnings-per-share estimates in the last seven quarters.

The Daily Chart for Home Depot

Home Depot had been above a golden cross 52 weeks ago. With the 50-day simple moving average above the 200-day simple moving average buying weakness to these averages provided buying opportunities. This strategy came to an end on the gap below the 50-day SMA on January 10.

The close below its 200-day SMA on February 18 provided a warning before the earnings release on February 22. Note that as 2022 began, that shares of Home Depot closed at $393.61 on January 7. This was below the 50-day SMA and its quarterly pivot at $395.61 which is the highest horizontal line.

The close on January 14 was just below its annual pivot at $372.48, which is the middle horizontal line. This led to the test of the 200-day SMA at $346.36 on January 24. The annual pivot at $372.48 was then tested again on February 2. This was thus an aggressive short-term trade. On February 22, the semiannual value level at $333.22 failed to hold on the negative reaction to earnings.

The Weekly Chart for Home Depot

The weekly chart for Home Depot has been negative since the week of January 14. The stock is below its five-week modified moving average at $354.41. The stock is still well above its 200-week simple moving average or reversion to the mean at $252.68.

The 12x3x3 weekly slow stochastic reading is declining at 17.39. Remember that stochastic readings scale between 00.00 and 100.00 with readings above 80.00 overbought and readings below 20.00 oversold. This means that shares of Home Depot are oversold. If this reading falls below 15.00 the stock will become “too cheap to ignore.”

Trading Strategy: Buy a 25% stake on Home Depot at the market ($310.00 this afternoon). Reduce holdings on strength to its semiannual pivot at $333.22.