Two reasons to buy Home Depot (HD) right now. (August 06, 2018)
HD
I am looking at Home Depot ( NYSE: HD ) today and this is why: You look at this chart and we see kind of a little cup formation here. It goes back to the February high and then since this time it has done this. This is an area where there is a lot of buying after this big move down. So Home Depot ( NYSE: HD ) is at this point where it is going to break out; right? No, I don’t know that it is going to break out, neither do you, neither does anybody else. We don’t know, you’re speculating here.
What we are looking at is this big, steep pullback, kind of a little basing pattern here, a two or three-month basing pattern. A squeeze, which tells us there is plenty of demand for the stock all the way up to here; this is where the supply hits the table and then the stock comes down here about 195.00ish and that is where demand hits the stock, right here. So we have got a level of demand right here at 195.00; we’ve still got supply right here at 203.00. But we also have a stock that sold off a lot; and since this time, since it bottomed here, it has been kind of gently and gradually moving higher in a series of higher lows and higher highs. This is what stocks that are under accumulation do.
This is what brought this stock to my attention just as I was preparing for our videos I had Fast Money on and I noticed Pete, who is actually where I am now which is in Minnesota, I noticed that Pete was on Fast Money talking about Home Depot ( NYSE: HD ), he had been long this stock for a while. And so I looked at it and thought, Huh, this is a good stock do for the Chart of the Day and this is why: Because this level here TOTALLY defines what your risk is. You are buying the stock here at about 196.00.
It is important to have a reason for buying a stock other than Pete Najarian said to buy the stock or Dan Fitzpatrick said to buy the stock. Or, Dan Fitzpatrick and Pete Najarian said to buy the stock. Those are kind of dumb reasons to buy a stock. You have to know why you are buying a stock. I got my attention called to this because of what Pete said. I am not buying because of what Pete said though. This is why I am buying it: because I see the stock down at support, I like the chart; I think I am not risking much money. The entire reason for me buying the stock is because I think, based on the pattern, it is going to go up through 200.00 and hit 205.00.
Now, will it go up beyond there? I don’t know that and the only people that do are liars, they don’t. But I know that the stock has a good chance of going up to here. Do you know why? Because it has done it here and it has done it, kind of like almost, here. This is the pattern, up down, up down, looking for up again. So I am not buying on the breakout that I think is going to happen.
If I was going to wait for that then what I would be doing is, I would be waiting for the stock to come up to this level to see if old “Petey Pete” was right. I would be watching it, I’m going to watch, I am going to see, I don’t know if he is right or not, he’s got kind of funny looking hair; I don’t know about that. If it goes up above 205.00, that is when I will buy it. Boom! I’m in. Great, now you are buying the stock and what happens? This old pattern reasserts itself. Then it goes back down here; now you are cursing Peter for being an idiot and Fitzpatrick for also being an idiot.
What I am telling you is this: You manage your risk. Your risk is really low right here. If the stock falls $2.00 you’re out of here. You’re just off, you’re done, that’s it. If the stock then reverses and ultimately moves higher, well then you got shaken out. You got shaken out and maybe you are going to wind up buying it again. I really don’t think that is going to happen.
I would say, if the stock falls below last weeks low then you need to stay away from it; don’t buy it. But if it doesn’t you are in at a really good price, Now you are up $5.00, 8.00, $9.00; when the stock is up at this level; at this point you have got your stop raised, you’re protecting yourself. Now you are in a good position; wait and see if the stock is going to break out to where you can buy more.
So my point is this, Home Depot ( NYSE: HD ) is a good pattern for managing risk. It is close enough to an all-time high to make it a stock that is attractive to buy. But it is close enough to the most recent low to make it a low-risk trade to be buying right now. So I would be buying Home Depot ( NYSE: HD ), particularly if it moves back up above the 50-day moving average, which is just fractionally overhead.
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