Home Depot (HD), which beat the Street on most of the important metrics in its earnings release, is a bellwether for retailing, homebuilding, home improvement, and the overall health of the consumer and the economy, recalls Mike Paulenoff of MPTrader.
It behooves investors to pay attention to the behavior and trajectory of the stock. My four-hour chart shows HD was trading near the lows of a week-long, near 9% correction off of its all-time high of 345.69 on May 10. The positive reaction to earnings and the pop in the stock to challenge key nearest resistance at 328.00 (before selling off) argues strongly that HD completed a correction at a low of 315.31, which now becomes consequential support on any forthcoming weakness. A sustained climb and close above 328 will position HD for upside continuation to challenge its ATH-zone at 342.00 to 345.69.
From a bigger picture perspective, however, my work presents some less-promising prospects for HD's potential upside price path. Let's notice on my daily chart that the last time HD Price AND Momentum hit confirming new highs was on April 16. The subsequent new ATH in price at 345.69 on May 10 was not confirmed by daily momentum, and as such, represents a glaring non-confirmation that serves as a warning signal to anyone who is camped-out in an entrenched long position: The power driving HD higher has dissipated and continues to dissipate as price moves higher.
From my technical perspective, HD needs to move sharply higher over multiple sessions to "motivate" a powerful catch-up move in momentum that will confirm a new ATH if HD manages to climb above 345.69.&
Bottom Line: While I would not be surprised to see HD approach its prior ATH-zone at 342 to 345.69 -- and perhaps eek out a marginal new ATH—my work is warning me to expect such strength to morph into a bull trap that we will look back upon as a significant high in HD that initiates a meaningful corrective period.
Mike Paulenoff is the author of MPTrader.com, a real-time diary of his technical analysis & trade alerts on ETFs for precious metals, energy, currencies, and an array of equity indices and sectors, including international markets, plus key ETF component stocks in sectors like technology, mining, and banking.
