The market is finally seeing it first decent bounce attempt of the day but to say that buyers are skittish would be an understatement. Breadth has declined from earlier levels to around 1850 gainers to 5250 losers and the number of stocks hitting new 12-month lows is now around 240.
This is looking like classic failed bounce action and the main issue will be whether those October lows will be retested. Those lows are still substantially lower and to retest them would require a real collapse. At this point there are plenty of stocks triggering sells and some real panic in the air but there are signs of some individual stocks being sold out.
I still have some partial positions in some of my favorite small caps but it isn't my style to be aggressive with averaging down into weakness. I'll look to add to key positions only when they are moving up rather than down.
Like many other stocks, Home Depot (HD) was caught in the very ugly October selloff. It has bounced back along with the broader market but it does not look like its struggles are over. The stock has some obvious support around the $170 level but there is formidable overhead at $185, $190 and higher. It is going to take either a very strong market or a much better housing market for Home Depot return to the September highs.
Home Depot not only has to contend with poor market action but worries about higher interest rates and a slowing housing market are major headlines. When home sales slow that often results in more money spent on home improvements but that is unlikely to make up from slowing business elsewhere.
From a valuation standpoint, Home Depot is not particularly expensive. It trades with a trailing PE of 21 and is expected to grown EPS 28% in the fiscal year ending in January 2019. Unfortunately, current estimates anticipate that earnings growth will slow to 7% next year. That slowing growth is the problem for Home Depot and will likely keep the stock stuck in a trading range.