Home Depot (
has built several support zones and formed a bullish channel,
helping to send the stock to new highs. But is the foundation of
that rally weakening?
is in full swing. February existing home sales data hit its
highest level since 2007, reaching nearly a five million
annualized pace. Meanwhile, supply remains low at 4.7 months.
The low supply and feverish demand for homes should help push
home prices higher
. As home prices
, sellers may be more willing to list their homes, driving up the
supply, which is near a five-year low.
This is good news for Home Depot on two levels. First, homebuyers
will often make minor adjustments to their new homes to better
suit their taste - from replacing a countertop to the addition of
a room. Second, prospective home sellers will often remodel ahead
of their listing date. The final selling price could increase by
several thousand dollars just by sprucing up the kitchen range or
In fact, remodeling activity is exploding. The National
Association of Home Builders reported that the Remodeling Market
Index reached 55 in the fourth quarter, hitting the highest level
since the first quarter of 2004. The first-quarter projection was
upwardly revised to 56. Any number above 50 indicates remodeling
activity is positive and better than was expected.
The economic environment favors Home Depot, and the stock has
responded in kind. The shares are up nearly 50% from a May low.
Volume has also increased during the climb, suggesting that
buyers continue to be interested in owning the company even if
that means paying a premium.
The shares are trading in a strong upward channel (blue lines).
So investors and traders must remain bullish as long as that
channel holds. Currently, channel support is near $66, and I'd
look to be a buyer at that level.
Aggressive traders can short the stock down to that area since
the indices look weak, too. However, I'd be very careful fighting
HD's bullish trend. Until sellers can break $66 support, bullish
investors haven't much to fear.
This chart shows the price of
shares along with an important price channel to
Equities mentioned in this article: HD
Positions held in companies mentioned above: