Home Depot’s Buyback an Opportunity to Improve Your Portfolio
- Posted by Greg Harmon
- on March 28th, 2011
Home Depot (ticker:$HD) announced a stock buyback after the close and was trading higher in the after hours session. So is this a good time to buy the stock? Buybacks can be interpreted in many ways. Short term they may pop the stock price as there are less shares outstanding. Longer term it can signal that a company sees no opportunity to put their cash to use, a negative for the stock price. So what is it in this case?
The technicals can give some clues. Look at the chart of HD below. It is in a long term up trend but looks to be getting a bit tired. Despite the Simple Moving Averages (SMA’s) rising the 20 day SMA has just started to roll down.
The Relative Strength Index (RSI) is crossing below the mid line and the Moving Average Convergence Divergence (MACD) indicator is flat lined. This is all happening at the 100% retracement of the fall from the highs in 2007 at 36.97. Also notice that it has not retaken the top in February after the two recent attempts and put in lower lows each time. Today it closed under both the 20 and 50 day SMA’s, possibly read for more downside. The price action was suggesting weakness. If it can get above the February high of 39.11, making a new higher high, then this view can be reversed. It is no man’s land in between.
As an alternative and comparison take a look at the chart for Lowe’s (ticker:$LOW) below.
LOW has many similar features in its chart, as expected in the same industry group. The RSI is falling toward the mid line and the MACD is flat lined. But notice the differences. The RSI has not fallen below the mid line all year. All of the SMA’s are rising including the 20 day SMA, and the stock price is above all of the SMA’s. Also during it’s run higher from December it has continued to post higher highs and higher lows. There is no doubt that the trend is still up in LOW.
So Home Depot may be giving current shareholders a short pop (or opportunity to get out), but from a technical perspective Lowe’s is a better place to put your money.
If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.
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.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
- VMWare shows real and relative strength
- Premium Earnings 8-3-15
- Top Trade Ideas for the Week August 3, 2015: Bonus Idea
- Top Trade Ideas for the Week of August 3, 2015: The Rest
- Top Trade Ideas for the Week of August 3, 2015: The Rest Premium
- Top Trade Ideas for the Week of August 3, 2015: The Best
- SPY Trends and Influencers August 1, 2015
- Macro Week in Review/Preview July 31, 2015
- How This Week’s Premium Top 10 Performed
- Premium Earnings 7-31-15