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Home Depot Pullback May Be a Buying Opportunity

Home Depot opened lower Tuesday as retail stocks were being punished following disappointing earnings. However, Home Depot has since fought back, ending the day higher by 31 basis points at $191.45.

The company reported earnings of $2.27 per share, topping expectations by 9 cents and growing more than 9% year over year. Revenue of $26.38 billion squeaked past estimates by $40 million and grew 5.7% from a year earlier. The world's biggest home-improvement retailer also reaffirmed its full-year guidance (something that Kohl's couldn't do, as shares tumbled 11% on the day).

But there were some flaws in the quarter. First, U.S. comparable-store sales only increased 3%,  while global comps came in at just 2.5%. Estimates were calling for 4.2% global comps. While the company reaffirmed its outlook, its full-year earnings expectations of $10.03 per share is a bit short of analysts' estimates for $10.09.

Is the weakness a buying opportunity, as we're seeing already in Tuesday's session, or is there more downside to come?

Trading Home Depot Stock

It's worth noting that Lowe's will report earnings on Wednesday before the open. While shares have risen 1% in Tuesday's session, this could be a mover for Home Depot stock on Wednesday as well.

As it pertains to the charts, we have to keep a few things in mind. First, Home Depot stock opened near the 200-day moving average and is so far bouncing off this level. For short-term investors, they can now use this low as a downside target. Below Tuesday's lows and HD stock could continue to fall, perhaps down to the 50% retracement for the one-year range at $184.74 and potentially down to $180.

On the upside, I would like to see Home Depot stock reclaim the $192.50 level. Not only will this put shares above the weekly high, but also above the 61.8% retracement at $191.31. On a smaller time-frame, we can see how $192.50 -- the gap-up level from late March -- was support earlier this month before flipping to resistance last week.

Management reiterated its full-year outlook, while comp-store sales were hurt this quarter by weather and are expected to gain momentum through the year. Further, Home Depot is now operating in its strongest quarter of the fiscal year, with the spring season fueling plenty of projects amid a strong economy.

That all makes me want to be bullish on Home Depot stock. That said, we have to respect price and there are some warning signs here. Shares are below trend (blue line), while the 20-day moving average is crossing below the 50-day, a bearish technical development. Support is turning to resistance too, further causing some short-term caution signs.

Reclaiming $192.50 would repair some of that damage, as would getting over some of its key moving averages. Take it one step at a time, and for longs they need to make sure HD stock stays above Tuesday's low.