Have Staples and Office Depot Plunged Low Enough to Buy?

Staples and Office Depot are both selling off in response to news of their failed merger, but that isn't necessarily creating buying opportunities in the stocks.

Author:: Jonas Elmerraji
Publish date:: May 11, 2016 1:55 PM EDT

News that U.S. District Judge Emmet Sullivan was ruling to block the merger between office supply companies Office Depot (ODP) - Get Report and Staples (SPLS) is hitting both stocks hard today.The court ruled that combining Office Depot and Staples would harm competition, leading to higher prices for buyers.

Has the selling created a buying opportunity in either stock? Let's turn to the charts.

Office Depot

Nearest Resistance: $5
Nearest Support: N/A
Catalyst: Blocked Merger

Office Depotis getting pummeled this afternoon, down more than 39% as of this writing. Staples had planned on paying $7.25 plus 0.2188 shares of Staples for every share of Office Depot. Shares were trading at a substantial discount to that proposed offer price yesterday, indicating that the market was pricing in a high risk of the deal falling through.

Technically speaking, Office Depot is in free fall following the news. The firm violated an important support level at $5 at the open this morning, and shares are on the lower end of today's trading range as of this writing. That's not a bargain-buying opportunity. It makes sense to stay far away from the long side of Office Depot until this stock can establish some semblance of support again.

Staples

Nearest Resistance: $11
Nearest Support: $8
Catalyst: Blocked Merger

Like Office Depot, Staples is selling off in reaction to the blocked merger -- and the news that the two companies won't try to fight the ruling. The difference is that Staples' selloff is much more contained. Shares are down 17% this afternoon, selling off to the support level at $8 that got set back in February.

It's a little early to get excited about the fact that Staples is catching a bid here. In the long-term, shares are forming a descending triangle pattern, a bearish continuation setup that triggers if $8 support gets violated. Put simply, if Staples can't hit the brakes at $8, then shares open up a lot of downside risk as we head into the summer.

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.