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by Arthur Hill
A resistance breakout with a gap and high volume open the door to higher prices for Home Depot.
Position: Accumulate
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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GAPS
Mind The Gap For Home Depot
12/05/06 12:50:18 PMby Arthur Hill
A resistance breakout with a gap and high volume open the door to higher prices for Home Depot.
Position: Accumulate
| Home Depot (HD) is an important bellwether stock that is part of the Dow Jones industrials, Standard & Poor's 100, S&P 500, consumer discretionary sector, and retail industry group. As its name implies, the consumer discretionary sector is the most economically sensitive and reflects the economic environment. Retail spending accounts for two-thirds of the GDP and this is an important part of the economy. HD's performance reflects overall market conditions, and the recent breakout bodes well for the market as a whole. |
| On the price chart (Figure 1), Home Depot broke resistance in September with a big surge on high volume. The stock then consolidated in the next two months with a volatile trading range (35.5–38.3). This range featured a gap down on October 12 and a big bullish engulfing pattern on November 14. The bullish engulfing pattern occurred on high volume and solidified support around 35.5. It was a violent range, but support held and buyers never caved in. More important, the stock followed through on the bullish engulfing pattern with a breakout at 38.3. The breakout occurred with a gap and high volume. The gap is bullish as long as it remains unfilled, and traders should watch for a move below 37 to negate this signal. |
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| FIGURE 1: HOME DEPOT. HD broke resistance in September with a big surge on high volume. |
| Graphic provided by: TC2000.com. |
| Graphic provided by: Telechart 2007. |
| |
| Key indicators confirm underlying strength and buying pressure. On-balance volume (OBV, purple line) bottomed in late August and moved steadily higher the last few months. OBV moved to a multimonth high in December and new buying is coming into the stock. The moving average convergence/divergence (MACD) moved into positive territory in September and has remained largely positive the last few months. There was a brief dip into negative territory in October, but this key momentum indicator quickly recovered. The MACD moved back above its signal line in December and momentum is moving back up. |
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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Date: 12/07/06Rank: 4Comment:
Date: 12/27/06Rank: 5Comment:
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