Wednesday, January 11, 2012

Home Depot (HD) positioned at resistance

As the New Year equities rally continues to grind marginally higher every day, a number of large-cap equities are at significant resistance levels – and, moreover, often across a variety of charting time frames.

Home improvement retailers Lowe’s and Home Depot are two such examples. In the case of the latter, today’s intra-day high of $43.60 touches price channel resistance on the daily, hourly and 5-minute charts.

On the daily chart (4 y D), the past days’ price action brings Home Depot into resistance from a significant price channel defined by the security’s five greatest price extremes from July 2009 to the present; it’s the yellow dashed line in the screenshot.

Also on the daily chart, the Price Oscillator indicator, defined here as the difference between price and the 200-day moving average, is only $0.95 below its 4-year high, indicating an over-bought market.

On the hourly chart (180 d 1h), the current rally brings HD price action to the resistance-edge of a price channel defined by the stock’s movement since August 2, 2011.

Price action looks particularly vulnerable due to the starkly decreased volatility between 20.12.2011 and the present. To be sure, seasonality (i.e. the holiday season) plays a significant part; yet, no matter the cause, such a lull and complacency very often precede a bearish turn of a market.

Finally, the five-minute chart (20 d 5m) confirms that, from an intra-day perspective on the last 2-3 weeks, today’s price action brought HD to the resistance-end of a price channel.

Of course, the extrapolation of such analysis of Home Depot is probabilistic, as is any attempt at prediction of the markets. Anything can happen at any time; tomorrow, price can pierce upward through the resistance lines on all three chart time frames.

Nonetheless, the positioning of HD’s price action into resistance on a variety of time frames strongly suggests that, false upward breakouts notwithstanding, the next month or two might see bearish sentiment take command, at least temporarily.

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