Home improvement stocks have had monster runs higher off of their lows in August 2011. But both Home Depot, (HD) and Lowes (LOW) are now pulling back. The start of a major correction or a good opportunity for those who missed the run to get it. Let's take a look.
Home Depot (HD)
Home Depot (HD) more than doubled over that period. Now pulling back below the 20-day Simple Moving Average (SMA) for the first time since August it seems drawn to the 50 day SMA at 57.30. Below that the 100-day SMA at 54.15 would put it near the 23.6% Fibonacci retracement at 54.71 and below the bottom Bollinger band. That would be a good place to stop if it was so inclined, and spot to look for an entry into a stock that still carries a 3-box reversal Point and Figure chart price objective of 95. Set an alert and look for the bounce. in the meantime for 14 cents you can take part in a continued move downward next week by buying the October monthly 57.5/55 Put Spread.
Lowes (LOW)
Lowes (LOW) did not perform quite as well but nearly made a double over that period. Recently completing a "W" pattern it is now pulling back too. Perhaps the "V" to follow. A 50% pullback of the "W" to the 28.50 area puts it squarely at the confluence of the 50/100/200 SMA’s and around the support of the center peak of the "W." Start to look for a bounce there. Along the way the November 30/28 1×2 Put Spreads, buying 1 November 30 Put and selling 2 November 28 Puts can be had for 22 cents. They will give a tidy profit if it stalls at 28.5 and get you into the stock with a basis at 26 if it keeps going beyond 28 at expiry.
Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Original post