Home Depot: To Be Long, Or Not To Be Long?

JC Parets, Market Technician and founder of Eagle Bay Capital, keeps track of the movement and performance of the stocks in the Dow 30. He recently commented on Home Depot Inc (NYSE: HD) from both a structural and a tactical perspective.

Weekly Chart

Structurally, the stock continued to push higher after hitting Eagle Bay’s initial upside targets close to $103 (based on the key Fibonacci extension from the 2013 consolidation).

Parets explains that, “When markets break out of such long bases, like HD did last August, the implications can be very powerful.” At this point the expert would “still be buying dips towards the lower of these two converging trendlines from 2010-2011 and taking profits at the upper of the two. With momentum in a strong bullish range and relative strength breaking out simultaneously with price, there is no reason to be short and the bulls still get the benefit of the doubt.”

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The subsequent upside target coincides with the upper of the two trendlines, which currently stands close to $135, but is moving higher.

Daily Chart

Short-term, the stock broke out at the end of October. After that, the firm said it only wanted to be long above this new resistance close to $93.50.

Parets continues, “I liked the fact that prices were holding up very nicely and our target just above 108 based on the 261.8% extension of the October correction was hit in February.” After breaking the uptrend line from the lows hit in October, prices remained in a sideways range for a couple of months.

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The experts said, “if we break below the lows of the range it would be a downside resolution to a traditionally bullish setup. This was not good.”

They add that, “now that momentum is in a bearish range, it changes the dynamic of this trade. But new longs can stay so but only above the downtrend line from the March highs.” However, they don’t see any reasons to be long below that, not to be short if prices are above that downtrend line.