Home Improvement Prepping for Improved Entries
- Posted by Greg Harmon
- on October 11th, 2012
Home improvement stocks have had monster runs higher off of their lows n 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. Lets 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, 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.
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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)
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