Home Depot, Its Charts Already Weakening, Is Drilled After Earnings

Home improvement retailer Home Depot Inc. (HD) reported its fourth-quarter results Tuesday morning and beat earnings and revenue forecasts, but traders were sellers of the stock at the open. In our Dec. 6 review of Home Depot we wrote, “My local Home Depot store has been busy and the charts are still pointed up — for now. Traders should nail down some profits now that our $412 price target has been reached and a doji pattern has appeared on the weekly candle chart.”

Let’s take a fresh look at the charts and indicators of Home Depot.

In this daily bar chart of HD, below, we can see that prices made a small double top-like pattern in December and January. This pattern does not span months like a classic double top would, but prices are under pressure nevertheless. HD tested the cresting 200-day moving average line in January and has been trading below this indicator in February. The slope of the 50-day moving average line turned negative/bearish in January and is still pointed lower. The trading volume has been heavier the past three months as traders and investors appear to be voting with their feet. The math-driven On-Balance-Volume (OBV) line has been weak in 2022 and tells me that sellers of HD have been more aggressive. The Moving Average Convergence Divergence (MACD) oscillator crossed below the zero line in early January for a sell signal and that is still in force.

In this weekly Japanese candlestick chart of HD, below, we can see a mixed to bearish picture. Prices have been testing the cresting 40-week moving average line but the recent candle pattern shows an upper shadow, telling us in the week before earnings that traders are rejecting the highs. The weekly OBV line shows a decline from the middle of December and the MACD oscillator is pointed down in a take profits sell mode.

In this daily Point and Figure chart of HD, below, we can see that prices reached a downside price target of $345. A trade at $340 will refresh the downtrend.

In this weekly Point and Figure chart of HD, below, we used close-only price data. Here the software is projecting a potential decline to the $289 area.

Bottom line strategy: I expect to be making many trips to my local HD store for various things for my new home but I don’t think my purchases will help the stock. Avoid the long side of HD as a better buying opportunity could be months away.