Home improvement giant Home Depot (HD) reports earnings before the opening bell on Tues., Aug. 20. The company has beaten earnings-per-share estimates in every quarter since Nov. 2012. My call is to sell the stock between its annual and monthly pivots at $207.32 and $211.08, respectively. The stock may be above a "golden cross" on its daily chart, but its weekly chart is negative.
Home Depot closed last week at $203.65 up 18.5% year to date and in bull market territory 28.8% above its Dec. 24 low of $158.09. The stock is 7.1% below its all-time intraday high of $219.29 set on July 14. The stock is a component of the Dow Jones Industrial Average and is outperforming the average, which is up 11% year to date. The stock is not cheap, as its P/E ratio is 20.02 with a dividend yield of 2.70%, according to Macrotrends. I favor Dow stocks that have a dividend yield above 3% as that milestone qualifies a Dow stock to be a member of the "Dogs of the Dow."
Analysts expect Home Depot to earn $3.07 to $3.12 per share when they report before the open on Tues., Aug. 20. Wall Street bulls like Home Depot on the assumption that the Federal Reserve will continue to cut rates. They opine that lower rates will prompt homeowners to flock to their stores and increase spending on home improvements. Guidance on the effects of the trade war with China and resulting comments on increasing tariffs will be important to keeping the earnings winning streak alive.
Jim Cramer's Housing Play Is Home Depot, Likes Walgreens
TheStreet's Jim Cramer says home improvement companies like Home Depot (HD) are the way he likes to play the housing market. In terms of the homebuilders, he does like Lennar (LEN) . Cramer also commented on the drugstore chains, saying CVS (CVS) is cheap, and he noted that Walgreens (WBA) is owned by the Action Alerts PLUS charitable trust, which he manages.
Home Depot is also TheStreet's sister site RealMoney's stock of the day. Click here to learn more.
Daily Chart for Home Depot
Courtesy of Refinitiv XENITH
Home Depot is trading under the influence of a "golden cross" that formed on April 12 when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow. When this bullish signal is in play, investors should buy weakness to the 200-day SMA. This strategy provided a buying opportunity between May 21 and May 29 when this average was $188.80. The "golden cross" tracked the stock to its all-time intraday high of $219.29 set on July 15. The stock rebounded Monday morning and traded as high as $208.82 between its annual and monthly pivots at $207.32 and $211.08, respectively. Semiannual and quarterly risky levels at $226.61 and $227.32, respectively, are above the chart. The stock is between its 200-day simple moving average at $191.58 and its 50-day simple moving average at $209.75.
Weekly Chart for Home Depot
Courtesy of Refinitiv XENITH
The weekly chart for Home Depot is negative with the stock below its five-week modified moving average of $208.50. The stock is above its 200-week simple moving average or "reversion to the mean" at $163.21. The 12x3x3 weekly slow stochastic reading is projected to decline 72.89 this week down from 78.70 on Aug. 16. Note that the reading is falling below the overbought threshold of 80.00.
Trading Strategy: Buy weakness to the 200-day SMA at $191.58 and reduce holdings on strength to between its annual and monthly pivots at $207.32 and $211.08, respectively. Sell additional shares on strength to the semiannual and quarterly risky levels at $226.61 and $227.32, respectively.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on July 31. The quarterly level was changed at the end of June. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.