Even though the
(INDEXDJX:.DJI) and the
(INDEXSP:.INX) were down less than 0.5% on Wednesday, the drop in
stocks this week has gotten quite a bit of attention. For the major
averages, the decline has just taken them back to minor support at
their still rising 20-day EMAs.
There has been further deterioration in the market internals as the
NYSE Advance/Decline has dropped below the late July lows and is
now in a short-term downtrend. The majority of the daily technical
studies have not yet turned negative.
The futures were higher this morning, and I would look for a range
to develop over the near term but it is also possible that the
market is building a top that will eventually result in a deeper
correction. Some sectors were hit much harder Wednesday as the
Philadelphia Housing Sector
(INDEXNASDAQ:HGX) was down over 2% and most of the homebuilders are
down sharply from their spring highs.
Will two of the largest home improvement stocks,
Home Depot, Inc.
Lowe's Companies Inc.
), now also see heavy selling?
Click to enlarge
Home Depot had an all-time high in May at $81.56 and last week's
high was just $80.50. HD dropped 1.8% on Wednesday.
- The low of the past five weeks is at $77.89 and stops are
likely under this level.
- The rising 20-week EMA is now at $76.08 with the weekly
uptrend, line a, at $73.30.
- HD had a low at $46.37 in May 2012 and the 38.2% Fibonacci
retracement support is at $67.85.
- The relative performance broke its weekly uptrend, line b, in
the middle of July and tested its flat WMA last week.
- The OBV made marginal new highs in July and is holding just
above its breakout level (line c) and its WMA.
- The volume has been declining over the past seven weeks, line
The daily chart of Home Depot shows a potential double top, line e.
- The quarterly pivot is at $76.81, which is just above the
uptrend, line f, at $74.70.
- A close below the June low at $72.41 would complete the
double top formation.
- The daily relative performance also shows double peaks with
resistance at line g.
- The RS line's daily uptrend, line h, was broken on July 25
and the June lows were subsequently broken.
- This is a negative development and indicates that prices may
- The daily OBV is now below its WMA and just slightly above
the support at line i.
Click to enlarge
- There is initial resistance now in the $79.50-$80 area.
Lowe's Companies, Inc. did make a new high Tuesday at $45.46 and
now has weekly support at $43.38.
- The rising 20-week EMA is at $41.63 with the weekly uptrend,
line a, at $40.61.
- The August 2012 low was $24.76 and the 38.2% Fibonacci
support is at $37.44 with the 50% support at $35.
- The weekly relative performance just made marginal new highs
with prices and is quite close to support, line b, and its
- The weekly OBV has formed a negative divergence at the recent
highs, line c, and is very close to dropping below its WMA.
- A break of the uptrend (line d) and a drop below the June low
will confirm a top.
The daily chart of Lowe's shows a potential short-term double top
and dropped back to its WMA on Wednesday.
- There is next daily support at $43.38 with more important at
$42, line e.
- The daily uptrend, line f, and the quarterly pivot is at
- The daily relative performance may also be forming a double
top, line g, with important support now at line h.
- The daily OBV made its high in May but then formed lower
highs in June and July, line i.
- The OBV has now broken its uptrend, line j (see arrow).
- This longer-term negative divergence is in agreement with the
weekly divergence so the multiple time frame OBV analysis is
acting toppy .
What it Means:
- There is near-term resistance now at $45-$45.46.
Of these two key home improvement stocks, Lowe's looks the weakest.
Both stocks bottomed out ahead of the homebuilders, and many are
wondering when or where the homebuilding stocks will bottom out.
Editor's Note: This article was written by Tom Aspray of
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