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Where to Buy Home Depot on an Earnings Pullback

Home Depot has been on fire, with shares ripping to new all-time highs ahead of earnings. Here's where investors should look to buy the dip in the stock.

Home Depot  (HD)  bulls have been rewarded by sticking with the home-improvement retail king.

Shares tagged a new all-time high on Monday, rising about 3.5%. That’s even with earnings due up on Tuesday before the open. Walmart  (WMT)  will also report earnings (here's the setup for it).  

Investors are clearly bullish on Home Depot as there is a shrinking list of stocks that are hitting new 52-week highs, let alone all-time highs, amid the coronavirus outbreak.

That’s been a role mostly reserved for high-growth tech stocks - like Twilio  (TWLO) , Shopify  (SHOP)  and Nvidia  (NVDA)  - even though the broader market has seen a strong bounce from the March lows.

With Home Depot stock hitting new highs ahead of the print things get a little trickier for bulls. Let’s look at the chart.

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Trading Home Depot

Daily chart of Home Depot stock.

Daily chart of Home Depot stock.

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TheStreet Recommends

Last week, TheStreet’s Jonas Elmerraji looked at the possibility that Home Depot stock would break out to new highs. Now that it is, it makes it a tough buy ahead of the print.

As is usually the case — but particularly as a stock is hitting new highs and is up 75% from its lows ahead of earnings — traders should wait until after the news to decide on what position to take.

There are two reasons I would love a shot at Home Depot on a post-earnings dip. First, from a fundamental perspective, the retailer is considered best in class. Second, its technicals are very bullish at the moment.

A mild dip down into prior resistance near $235 would be a great buying opportunity. It would also put rising uptrend support (blue line) in play.

On a slightly deeper correction, the $225 level may be on the table, where HD stock will find its 20-day moving average and the 78.6% retracement. Below that and the 200-day moving average is possible at $219.

Below that and technically, Home Depot stock will have lost all of its short-term momentum.

On the upside, I am looking at $255, where Home Depot stock finds the backside of a prior long-term uptrend, followed by $270.52, the 123.6% extension for the 2020 range.