How to Trade Home Depot After It Reports Earnings

Home Depot has traded sideways for almost six months now. Can earnings break the stock out of its recent range? Let's look at the charts.
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Home Depot  (HD) - Get Report has been struggling ahead of earnings, with shares down almost 2% on Monday ahead of the company’s quarterly report Tuesday.

The weakness follows Friday’s 1.2% fall as well, after Home Depot looked like it was prepared to give investors a nice pre-earnings rally in what is sure to be a busy week of quarterly reports

In any regard, is the stock finally ready to resume its move to the upside?

Home Depot and Lowe’s  (LOW) - Get Report were deemed essential during the pandemic and with so many people working on their homes - likely on account of how much time they were now spending there due to COVID-19 - investors saw these stocks as coronavirus plays.

After more than doubling from the March low to the August high, Home Depot has been trading sideways since. In fact, it’s been almost six months and the stock is still down about 6% from those highs.

Bulls want to know if Home Depot can get going again or if it needs more time.

Trading Home Depot

Daily chart of Home Depot stock.

Daily chart of Home Depot stock.

Notice the V-shaped rebound in Home Depot stock, as shares took out the pre-coronavirus high near $247 and topped shortly after near $259.

A little more than a month later and Home Depot was able to break out over this high too, eventually charging to the current high at $292.95.

Since that high though, look at the way shares have been consolidating. Just below resistance now, bulls are looking for Home Depot stock to make its way higher after earnings.

Specifically, they are looking for a move over downtrend resistance and for a weekly-up rotation over $284.68. Of course at that point, a monthly-up rotation will also be in play at $285.77.

Above that could put the $290-plus area in play, along with a test of the current high. If Home Depot clears those levels on earnings, $300 is our next target, followed by the 161.8% extension from the entire range up near $313.

If the post-earnings reaction is bearish and Home Depot stock loses the 100-day moving average, let’s see if the 200-day moving average acts as support.

Below it will put the June high near $259 on the table, as well as recent trend support. I would be looking for a potential dip-buy to this spot should shares slip on earnings. However, that would require a 9% dip from current levels.

In short, let’s watch for a rotation over the $285 to $286 area on the upside. On the downside, watch the 200-day moving average and $260 level.