Home Depot Sags on Outlook, but a Key Price Will Decide Its Ultimate Fate

A close below $230 would weaken its charts somewhat here on Tuesday, but breaking $216 in the coming days and weeks would be a big deal.

Home Depot Inc. (HD) reported its third-quarter numbers here on Tuesday morning and is the Stock of the Day at Real Money. Home Depot posted modestly stronger-than-expected earnings but trimmed full-year sales guidance as the world's biggest home improvement retailer said some of its investments won't pay off until 2020. Home Depot shares were down around 3% before Tuesday's opening bell.

We covered the stock earlier this month and wrote at that time: "Don't label me a bear on HD but the latest indicators tell me that traders and investors should consider tighter sell stops to lock in gains." The Point and Figure chart we used showed that a trade to $220.28 would weaken the chart. Let's see what the charts look like now for Home Depot, which is a holding of Jim Cramer's Action Alerts PLUS charitable trust.  

In this daily bar chart of HD, below, we can see that prices stalled in the $235-$240 area this month. The rising 50-day moving average line was tested a number of times in November and the On-Balance-Volume (OBV) line was steady ahead of this report, suggesting that buyers seemed confident. The Moving Average Convergence Divergence (MACD) oscillator was above the zero line and poised for a turn to the upside. 

 

In this weekly bar chart of HD, below, we can see a bullish setup on the chart. Prices are above the rising 40-week moving average line, which intersects down around $211 or so. The OBV line was strong heading into the earnings report, so there are an increased number of recent longs. The MACD oscillator was poised for a bearish cross to the downside and this could materialize.  

 

 

In this Point and Figure chart of HD, below, we added the volume-by-price information on the left scale. The chart shows a large amount of trading in the $216 area. This can cut two ways. Traders who are long from around $216 could defend that area and prices hold. Another outcome could be that if prices break the $216 level we could have spillover selling as they cut their positions. 

 

 

Bottom line strategy: Traders need to focus on two levels on HD over the next few days. A close below $230 will weaken the chart somewhat, but breaking $216 is a big deal. You need to decide if you are a trader or an investor.

 

(Home Depot is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these HD? Learn more now.)

Employees of TheStreet are prohibited from trading individual securities.

Action Alerts PLUS, which Cramer manages as a charitable trust, is long HD.