Shares of Home Depot (HD) - Get Report dropped 2.68% in Friday's session breaking below their rising 50-day moving average for the first time in seven months, and potentially forming a long-term top on the daily chart. The drop in stock price was powered by a surge in negative volume, 145% greater than the 50% moving average of volume. This combination of price action, volume and technical deterioration suggest a top may, in fact, be in place, and the stock price could be headed considerably lower.
A steady pattern of rally followed by lateral consolidation delineated the 35% move higher off the November 2016 low. The most recent period of sideways price action began in May this year above the $153.00 level and continued into June, briefly breaking that support but then bouncing off the 50-day moving average. That bounce brought the stock back up to the May high area, but last week the move failed, and the stock dropped back through the June low.
Daily moving average convergence/divergence, which is overlaid on a weekly histogram of the oscillator, has made a bearish crossover on both timeframes, and the relative strength index crossed below its signal average and centerline. These indicators have been in negative divergence to the stock price for some time and have been signaling a potential decline. The accumulation distribution crossed below its signal average and Chaikin money flow has moved into negative territory.
Home Depot is a speculative short sale candidate at its current level using the position size that accommodates an initial buy-to-cover stop above the 50-day moving average.
The home improvement supplies retailer's shares fell 2.4% to $151.80 on Monday morning.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.