Shares of Home Depot (HD) - Get Report had been moving in a steady series of higher swing-cycle highs and higher swing lows for the last year, forming a rising wedge pattern. They broke through the pattern uptrend line last month, but held above $125.00 level, forming a small consolidation channel.
This pause in downside momentum may be coming to an end, and the stock now looks poised to accelerate lower.
The weekly chart shows the rising wedge formation defined by the swing high and low process and the small channel that formed after the breakdown, under the 40-week (200-day) moving average.
Moving average convergence/divergence has been making lower highs this year in bearish divergence to the higher highs in the stock, and the relative strength index has moved below its center line. These are signs of waning price momentum, supported by the negative Chaikin money flow reading, which is a sign of distribution.
The channel pattern can be seen in more detail on the daily chart, with the flat 40-week average positioned in its upper range.
Price action over the last three sessions formed a pattern similar to the "three black crows" candlestick formation, which consists of three consecutive long dark candles that have closed lower than the previous day. It is a sign the bulls lack conviction and a signal that a previous uptrend may near an end.
On this time frame, the relative strength index and moving average convergence/divergence are rolling over below their center lines, and Chaikin money flow reflects institutional selling pressure.
Home Depot is a short candidate after a lower candle close below the $125.00 level, using a tight trailing buy-to-cover stop. All short positions are speculative and capital preservation is job one.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.