Here’s what Im doing on Home Depot ($HD) – September 3, 2021
HD XHB
I am going to suggest that Home Depot ( NYSE: HD ) be opened as an active trade on Tuesday. I like the way the stock has set up along the 50, it could be tighter, it’s not the perfect entry at all but I like the way the sector is acting. The Homebuilding Index ( NYSEARCA: XHB ), the ETF; this is one of the strongest ones, Home Depot ( NYSE: HD ) is in one of those.
Their fundamentals are pretty good. Their growth isn’t really accelerating on top of the accelerator but it is pretty good. And so fundamentally, technically, it’s all good. Sector-wise it’s all good. If you watched my webinar from earlier this week you know that 50 percent of a stock’s movement typically comes from sector and industry group inclusion. And so this thing, really, is firing on all cylinders.
Now, it’s not a super volatile stock. I am suggesting that our people get in around here. Again, I don’t know what’s going to happen Tuesday, except that I am going to wake up down in Mexico and not be thinking about the market., so I can’t help you there. But what I am suggesting they do is, really try to buy it at 331.00 or less, don’t chase it up. If you can buy it around this level and then you keep a stop down here below this day’s intraday low, you’ve got about 4 percent, between 4 and 4.5 percent risk.
Now, this is not a super volatile stock. If it runs up here to test this high it’s a 3 percent gain. So in this way, if you are kind of structuring your trade, what’s my maximum risk? Well, we know that, it’s down here at 4.5 percent. What’s my potential reward? And you could say, oh, I think it’s going to 400.00. Okay, well hope isn’t a trading method, it’s not an analytical way to go.
As I look at this, this is the last resistance, 340.00 is where I could expect this to go if I am factoring in a risk/reward profile and that is 3 percent. So I am risking 4 percent on the downside to make 3 percent on the upside. That doesn’t really quite work for me. And so do you know what you could do instead? You could say, I don’t want to have my stop down here. I want to have my stop down here at 319.00, something like that. So now what do we get? We’re back here at 330.00, down to 319.00, that’s 3 percent that we are risking.
Now, what’s our potential reward on the upside? It’s 2.5 percent, if we want to look all the way up to 340.00, which is what I would do, I would say 340.00, it’s almost 3 percent. So this is a better risk/reward profile and you can even go tighter, you can do here, it’s your trade. I am just laying out the different ways to do it. What I told our members is, I’m keeping this one because I like to try to trade stocks for a longer holding period and make bigger money on them than just 5, 6, 7 percent, or something. That’s how I am looking at Home Depot ( NYSE: HD ).
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