Bearish Candlesticks Gang Up On Home Depot

11/29/05 09:47:16 AM

by Arthur Hill

The mid-November gap has become a battle zone for Home Depot, and the two-week trading range will decide the stock's fate.

Security: HD
Position: Hold

Home Depot had a nice run in October and early November, but suddenly hit resistance after the November 14th gap (green arrow) (Figure 1). The gap was quickly filled as the stock traded below 42 twice in the last two weeks and a trading range was taking shape. A break above range resistance at 43.4 would keep the uptrend alive, while a break below range support at 41.5 would be bearish.

FIGURE 1: HOME DEPOT, WEEKLY. After a run in October and early November, HD hit a roadblock after the November 14th gap (green arrow).

Graphic provided by: MetaStock.

Graphic provided by: MS QuoteCenter.

A number of bearish candlesticks formed within the trading range. First, there were two shooting stars. The first formed with the gap above 42 and the second formed on the Friday after Thanksgiving (red arrows). These are both bearish candlestick reversal patterns, and a support break at 41.5 would provide confirmation.

Within the trading range, the stock opened strong twice and closed weak to form two long black candlesticks. These confirm resistance at 43.4, as do the shooting stars. The third bearish candlestick feature is a hanging man on November 16. Taken together, these candlesticks show a serious tug-of-war between bulls and bears.

Which way will the stock break? Technically, the shooting star and long black candlestick over the last two days make for a confirmed bearish candlestick reversal pattern. In addition, downside volume has been outpacing upside volume (blue arrows). The buyers appear to be running out of steam and a support break at 41.5 would be the final straw.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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CANDLESTICK CHARTING

Bearish Candlesticks Gang Up On Home Depot

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