
How to Trade Home Depot and Lowe's Before and After Earnings
Home Depot (HD) - Get Report is one of eight components of the Dow Jones Industrial Average I:DJI that are outperforming the average for the year to date. The home improvement giant is up 14.2% in 2015, with the Dow 30 down 3.4%. Rival Lowe's (LOW) - Get Report is lagging Home Depot with a gain of just 1.9% year to date.
Recent earnings reports from major retailers have been weaker than expected. Now, following the horrific terrorist attacks in Paris, will consumers be more reluctant to go shopping? That's difficult to say, but the stocks' charts should help investors consider Home Depot and Lowe's before they report earnings this week.
Looking at the daily charts, Home Depot has been above a "golden cross" since Dec. 5, 2011, while Lowe's had been above a "golden cross" since Aug. 21, 2014, which was reversed Aug. 7. (A "golden cross" occurs when a stock's 50-day simple moving average rises above its 200-day simple moving average, a technical signal that additional share price gains lie ahead.)
The weekly charts are waving warning flags, though. Home Depot ended last week with a "key reversal," while Lowe's ended the week with a negative weekly chart.
Analysts expect Home Depot to earn $1.32 a share when it reports earnings before the opening bell on Tuesday, Nov. 17. Most expect the company to show an increase in U.S. same-store sales, continuing a steady growth path. TheStreet Ratings gives the stock a buy rating.
Analysts expect Lowe's to earn 78 cents a share when it reports earnings before the opening bell on Wednesday, Nov. 18. TheStreet Ratings gives the stock a buy rating.
Here's the daily chart for Home Depot.
Courtesy of MetaStock Xenith
The daily chart shows that Home Depot had a close of $120.00 on Friday, up 3.9% so far in the fourth quarter and up 14.3% year to date.
The stock began 2015 above a "golden cross" in place since Dec. 5, 2011, when the stock closed at $40.23.
The stock has been trading back and forth around its 50-day simple moving average since April 14, and it survived the flash crash of Aug. 24. That spike lower sticks out like a sore thumb and during this plunge the stock was briefly in bear market territory. The 200-day simple moving average was subsequently tested on Sept. 29, when the average was $111.98.
After setting an all-time intraday high of $126.12 on Nov. 9, the stock slipped by 4.9% to its 50-day simple moving average of $120.19.
Here's the weekly chart for Home Depot.
Courtesy of MetaStock Xenith
The weekly chart for Home Depot ended last week with a downgrade to neutral from positive, with the stock below its key weekly moving average of $121.20. The 200-week simple moving average, at $81.40, was last tested during the week of Aug. 12, 2011, when the average was $28.79. The weekly momentum reading of 91.79 is well above the overbought threshold of 80.00.
Momentum scales from 00.00 to 100.00, with a reading below 20.00 oversold and a reading above 80.00 overbought. A rising reading above 20.0 is positive, while a declining reading below 80.00 is negative. This study is shown in red along the bottom of the chart.
Note that last week is a potential "key reversal," as the close on Friday at $120.00 was below the low of the prior week of $123.38.
Investors looking to buy Home Depot should place a good till canceled limit order to buy the stock if its drops to $73.20, which is a key level on technical charts until the end of 2015.
Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $123.01, which is a key level on technical charts until the end of 2015, and has already been tested last week.
Here's the daily chart for Lowe's.
Courtesy of MetaStock Xenith
The daily chart shows that Lowe's had a close of $70.09 on Friday, up 1.7% so far in the fourth quarter and up 1.9% year to date.
The stock began 2015 above a "golden cross" in place since Aug. 21, 2014, when the stock closed at $52.67. The stock set its all-time intraday of $76.25 on March 24, then moved sideways to down and began to track the 50-day simple moving average lower on April 17. The "golden cross" ended on Aug. 7, before the stock spiked higher into Aug. 20. Then came the flash crash of Aug. 24, when the stock set its 2015 low of $64.22.
The stock ended Friday below its 50-day and 200-day simple moving averages, which converged at $71.28 and $71.16, respectively.
Here's the weekly chart for Lowe's.
Courtesy of MetaStock Xenith
The weekly chart for Lowe's ended last week with a downgrade to negative from positive, with the stock below its key weekly moving average of $71.59. The 200-week simple moving average, at $48.32, was last tested during the week of Nov, 25, 2011, when the average was $22.28. The weekly momentum reading declined to 78.09 last week, down from 78.43 on Nov. 6.
Investors looking to buy Lowe's should place a good till canceled limit order to buy the stock if its drops to $65.04, which is a key level on technical charts until the end of 2015.
Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $74.03, which is a key level on technical charts until the end of 2015, and has already been tested last week.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.












