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Investment

Home Depot's weakness here is a chance to buy the breakout, technician says

A weak sales performance in its recent quarter has Home Depot under pressure, but one technician says to buy here for its likely breakout.

“This weakness is occurring above support and within HD’s turnaround, and we therefore see an opportunity to buy shares,” Ari Wald, head of technical analysis at Oppenheimer, said in an email Tuesday.

The key to its strength lies in its technical performance, said Wald.

“The charts are bullish. They’re telling me to buy. They are signaling that the uptrend for Home Depot is continuing,” he told CNBC’s “Trading Nation” on Monday.

The home improvement retailer has outperformed the market in the past month after trailing the Dow Jones industrial average through the start of the year. It is the second-best Dow performer over the past 30 days.

A few technical levels suggest its recent performance should continue, said Wald.

“Home Depot’s 200-day moving average, still rising. This is indicative of a stock in an uptrend,” he said. Its stock is also “moving above $180. This is the first higher high for Home Depot since the correction started.”

Home Depot’s stock broke out above $180 in late April, a level it has been able to hold in intraday trading since.

“Add it all up, we have a pullback in an uptrend with an inflection. All signs pointing to a resumption of that uptrend for Home Depot,” said Wald.

Michael Bapis, partner and managing director at the Bapis Group at HighTower Advisors, also sees more upside for Home Depot.

“The fundamentals are there,” Bapis said on Monday’s “Trading Nation.” “They have a great management team, they’re trading at only 20 times next year’s earnings, you’re getting a 2 percent dividend yield.”

A decline from January highs has brought down Home Depot’s valuation. The company is currently trading at 19.5 times forward earnings after hitting a multiple as high as 22.7 at the start of the year.

“We would own it short term, long term, and everybody knows that any construction that’s done, Home Depot is going to be a part of it,” said Bapis.

Disappointing fiscal first-quarter revenue and same-store sales hit Home Depot shares Tuesday morning. Its stock was one of the Dow’s biggest laggards with a decline of nearly 2 percent.

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Source: Investment Cnbc
Home Depot's weakness here is a chance to buy the breakout, technician says

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