Home Depot gets it done
11/16/17
There’s retail, and then there’s retail. The increasing challenges faced by many brick-and-mortar stores in the Age of Amazon haven’t seemed to phase Home Depot (HD), which on Tuesday released robust earnings numbers, and continued to separate itself from the retail pack. While its sector peaked sometime in 2015, HD has spent the past couple of years establishing a new high every few months, amid a trend of DIY enthusiasm among millennial homeowners.1
Home Depot (HD) 5/8/10 – 11/15/17

Source: OptionsHouse

It’s probably unfair to compare Home Depot—which is essentially a specialty (home-improvement) business—to the old-line department stores that have weighed so heavily on the retail sector, but HD’s continued stock performance and consistently solid financials are nothing to sneeze at. 

Tuesday’s earnings release day turned out to be a wild ride for HD—the stock shot below the previous day’s low on the open, jumped to a higher daily high in the next five minutes, turned south AGAIN towards the day’s low, before staging another rally to close more than 1% higher at $168.06—besting the previous record close on October 26 by about 40 cents [wipes hand across brow].

Home Depot (HD), 11/13/2017 – 11/15/17

Source: OptionsHouse

Yesterday turned out to be a different story, however. It was a weak day for stocks overall (ironically, though, an up day for the retail sector), but HD outpaced the broader market to the downside, retreating more than 1.3% intraday. Although HD’s history indicated a give-back was certainly possible after this type of up day, the size of Wednesday’s down move was a bit out of the ordinary. Since 1982, for example, HD has had 315 days similar to Tuesday: a close at least 1.5% higher than the previous day and a high above at least the past 126 highs. Returns were more or less flat the next five days or so, yet after 10 days, the typical gain was around 1%.
Home Depot (HD), 8/25/2017 – 11/15/17

Source: OptionsHouse

If you throw in Wednesday’s price action to this pattern—say, a close at least 0.75% below the up day’s close—the results are more bullish, with the next two days closing higher 54% of the time.

Some big prints in HD options went across the tape both the day before earnings and after they were released on Tuesday, including more than 26,000 November $170 call options—a strike just a little more than 1% above Tuesday’s intraday high of $168.14.

HD has now established clear support and resistance levels for its recent price action. Resistance lies in the area of the current high, while support is apparent around the October 17 and November 2 lows—a chart level that also dates back to the September 13 high. As of yesterday, HD was still closer to resistance than support.

 

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1Home Depot is retail's bright spot as it courts younger shoppers who prefer DIY. CNBC.com. 11/14/17.