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RETRACEMENT


Home Depot On Fast Track

09/04/07 01:19:58 PM
by Chaitali Mohile

Home Depot has moved above some resistances, recovering from its previous losses on correction.

Security:   HD
Position:   Buy

Home Depot (HD) moved as low as 31.65, losing around $9 in the recent market correction. The double-top formations at the 41.93 level weaken the stock and the bulls too. Figure 1 shows the fast recovery of these losses from the 31.65 support level. The stock has pulled back to the 61% retracement levels and stands on 50-day moving average support, closing marginally above 200-day moving average (MA). The increase in volume supported the bullish pullback even under bearish crossover circumstances. The 50-day moving average very recently moved below the 200-day MA, generating the bearish conditions, but the price still moved ahead, neutralizing this bearish effect. The rally above $38.54 would lead to the previous highs of Home Depot.

FIGURE 1, HOME DEPOT, DAILY. After the correction, HD recovered to the 61% retracement level; $40.82 would be the next resistance level and the target for the long position would be above 38.54.
Graphic provided by: StockCharts.com.
 
The stochastic can remain overbought for a longer duration. In Figure 1, the stochastic (14,3,3) is 87 -- that is, in overbought zone -- and has enough space for the bullish rally ahead. The moving average convergence/divergence (MACD)(12,26,9) is still in negative territory, whereas the histogram has moved above its zero line. So there is a mixed view on the MACD (12,26,9). The positive directional index (+DI) has moved above the negative directional index (-DI) and turned the trend with the bulls. Increasing buying pressure would strengthen the developed uptrend. So the breakout above 38.54 would be healthy going long on Home Depot Inc.


FIGURE 2: HOME DEPOT, WEEKLY. The MACD (12,26,9) is the only indicator on this chart that would require bullish confirmation.
Graphic provided by: StockCharts.com.
 
On the weekly chart in Figure 2, you can see that strong support is established at $31. Home Depot witnessed the fast recovery of losses. Apart from the MACD (12,26,9), the other two indicators are bullish. The stochastic (14,3,3) has opened a buying opportunity at the 23 level. The average directional movement index (ADX) (14) is indicating a developing uptrend, while +DI is tipped upward as -DI is ready to move downward. This means the volume would keep increasing.

The weekly and daily charts have a bullish force to keep Home Depot on the same fast track. The traders already long can keep a stop-loss of the $37.50 level. The 50-day MA and the 61% retracement level extends the same support level here ($37.50). But long positions should be looked at only above Friday's high.



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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