Home Depot, Lowe's Face Technical Headwinds -- So Use Charts to Trade Them

Home improvement giant Home Depot (HD) is a benchmark component of the Dow Jones Industrial Average (INDU) . The stock was the third-best performer of the Dow 30 in both 2014 and 2015, with annual gains of 27.5% and 26%, respectively. This year the stock is down 2.4%, but is up 17.7% since trading as low as $109.61 on Feb. 8.

Home Depot reports quarterly earnings before the opening bell on Nov. 15. Analysts expect the company to earn $1.58 a share. Home Depot has a string of 17 consecutive quarters of beating analysts' earnings-per-share estimates.

Arch rival Lowe's (LOW) has had a tougher year, and is down 8.7% year to date. But is up 10.9% since trading as low as $62.62, also on Feb. 8.

Lowe's reports quarterly earnings before the opening bell on Nov. 16. Analysts expect the company to earn 97 cents a share.

Here are the daily and weekly charts for the two home improvement retailers and how to trade them.

The daily charts feature Fibonacci retracement levels of the rise from their Feb. 8 lows to their July or August highs. Retracements are 23.6%, 38.2%, 50% and 61.8% of the 2016 rallies.

The weekly chart shows a red line through the price bars, marking the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average, the "reversion to the mean."

The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicate overbought and readings below 20.00 indicate oversold.

A negative weekly chart shows the stock below its key weekly moving average, with weekly momentum declining below 80.00 in a trend toward 20.00. A positive weekly chart shows the stock above its key weekly moving average, with weekly momentum rising above 20.00 in a trend towards 80.00.

Here's the daily chart for Home Depot.

Courtesy of MetaStock Xenith

The daily chart shows the Fibonacci retracement levels of the rally from the Feb. 8 low of $109.62 to the Aug. 2 high of $139.

Home Depot reported second-quarter earnings on Aug. 16, and the initial reaction was positive. But a new high could not be confirmed and the stock began its decline down the Fibonacci retracements. The close on Sept. 8 was below the 23.6% retracement of $152.06.

On Sept. 9, the stock closed below its 200-day simple moving average, then at $130.69, and closed that day on its 38.2% on $127.78. This retracement has been a magnet since then. The stock was below its 50% retracement of $124.31 on Oct. 25 and was below its 61.8% retracement of $120.84 on Nov. 1, setting its second-half low of $119.20 that day.

Expectation that Hillary Clinton would become Madam President had the stock as high as $125.42 before the election results. As it became clear that Donald J. Trump would become President-Elect, who knows how low Home Depot would have traded when Dow 30 futures were down more than 800 points.

The stock opened Wednesday with a buying opportunity at the 61.8% retracement of $120.84. Thursday's high of $130.10, was an opportunity to reduce holdings at its 200-day simple moving average of $130.02, a gain of 7.6%.

Here's the weekly chart for Home Depot.

Courtesy of MetaStock Xenith

The weekly chart ended last week negative but oversold, but a close today above its key weekly moving average of $126.94 will shift the chart to positive if weekly momentum rises above the oversold threshold of 20.00. The current reading is projected to be 19.50, up from 16.63 on Nov. 4. Note that the 200-week simple moving average lags at $100.99.

Investors looking to buy Home Depot should consider buying weakness to $123.22, which is a key level on technical charts until the end of next week. Investors looking to reduce holdings should consider selling strength to $136.37, which is a key level on technical chart until the end of November.

Here's the daily chart for Lowe's.

Courtesy of MetaStock Xenith

The daily chart shows the Fibonacci Retracement levels of the rally from the Feb. 8 low of $62.62 to the July 12 high of $83.65.

Lowe's reported second-quarter earnings on Aug. 17. The reaction was negative, as shown by the price gap below its 23.6% retracement of $78.68. The stock stayed above its 38.2% retracement of $75.60 until Sept. 7, when the stock closed below its 200-day simple moving average, then at $75.72. The 50% retracement of $73.12 and its 61.8% retracement of $70.63 became magnets between Sept. 9 and Oct. 24.

The stock opened Wednesday to set its 2016 low of $64.87. Thursday's high of $70.48 was below the 61.8% retracement of $70.63 and below its 50-day simple moving average of $70.70.

Here's the weekly chart for Lowe's.

Courtesy of MetaStock Xenith

The weekly chart ended last week negative but oversold. A close today above its key weekly moving average of $74.43 will shift the chart to neutral, as weekly momentum will remain well below the oversold threshold of 20.00. The current reading is projected to be 11.23, up from 9.91 on Nov. 4. Note that the 200-week simple moving average lags at $59.93.

Investors looking to buy Lowe's should consider buying weakness to $66.56, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should consider selling strength to $74.82, which is the 200-day simple moving average.

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

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