Trading Home Depot After Its $8 Billion Buy of HD Supply

Home Depot trades mostly flat after agreeing to buy HD Supply for $8 billion. Let's look at the chart to see how the stock is setting up.
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Home Depot  (HD) - Get Report shares weren't moving much on Monday, trading about flat on the day despite making an $8 billion acquisition of HD Supply  (HDS) - Get Report.

HD Supply agreed to be acquired for $56 a share, with the boards of both companies unanimously approving the deal.

It is expected that the deal will close by Jan. 31, 2021. 

If the names seem similar, it’s because Home Depot put HD Supply through an initial public offering in 2013.

For its part, HD Supply shares have risen about 25%. Short of the deal falling through, there’s little reason left to trade the stock, as it hovers just below that $56 takeout price.

However, there’s still reason to trade Home Depot. Let’s look at how the stock is setting up now after the news.

Trading Home Depot

Daily chart of Home Depot stock.

Daily chart of Home Depot stock.

Home Depot shares have come roaring off the lows it made in March. Although the market was flushing seemingly anything and everything lower at that time, not all companies were hurt in the same manner.

In the case of Home Depot, it has benefited from a robust housing market and an uptick in DIY projects.

After surging higher, shares ran out of steam in August, settling into a trading range with resistance at $290 and support at $262.

Lately though, that range has tightened even more, with the stock’s series of higher lows and lower highs forming a wedge pattern (blue lines). In both cases of Home Depot’s higher lows, the 100-day moving average has helped give the stock a boost.

The acquisition doesn’t help with clarity on the charts, particularly with Home Depot not moving much on the day.

On the downside, if it loses $272.50 and the 100-day moving average, investors will likely turn their attention to the $262 range support area. If that gives way, it could put the 200-day moving average in play, a level that hasn’t been tested since May.

On the upside, the setup is also rather simple. Bulls need to see Home Depot trade above this month’s high at $289, putting $290 range resistance on the table. Above that and $300 is in play.

If Home Depot stock can push through $300, look for a push up to the 161.8% extension, which comes into play at $308.82.