Short

Short HD; you can do it, I can help.

Updated

A couple of indicators are showing divergence for the past week or so, as HD has melted up choppily. It needs some relief and is being sustained by erstwhile investors scrambling for a safe investment in a volatile bond market when the banks can't be counted on to manage their risk. I'd suspect that this could continue a little bit, but within the next week or so as the market changes again this should take a pounding.

Note the marked divergences and the weakness of the indicators after we passed the shaded area. Today might well be the double top we need to leg it down.

The way I see it, the weak technical picture hides an interesting scenario; bond yields calm, money flows back into more conditional investments like tech (this will keep happening to a lesser extent everytime yields 'decline' and consolidate) and away from HD. Bond yields increase and the market panics. Bond yields stay the same and people go back to their riskier bets. In all scenarios HD and other builder, stocks decline in the interum. Perhaps they'll pickup before earnings but they need price discovery now.

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Failed to breakthrough the developing resistance level at around $305.50. Double top complete.

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marketwatch.com/investing/index/djia?mod=newsviewer_click

Pending home sales fall 11% in February. The big question is why. If it is because the demand is being suppressed then that's positive for builders. If it indicates any erosion in demand then builder stocks will be punished.

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The report indicates record demand, but record-low inventory. This is ultimately good news for builders, but being received negatively by as some investors are folding and it's off its highs.

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This might be negative news in the housing market report:

"REALTORS® expect a 3.1 increase in home sales in the next 3 months vs the same period one year ago.
REALTORS® expect a 5.9 increase in home prices in the next 3 months vs the same period one year ago.
REALTORS® expect a 2.4 increase in home prices in the next 12 months from January 2020."

Simply put, the salespeople of the real estate market are expecting housing prices to only inch up 2.4% this year, which is lower than some investors have factored in.

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I'm gonna give this a little breathing space. The meltup is frustrating, but $290 should be considered the bottom of the channel it's currently in. $305.50 is the support level to watch. We want to see it fall beneath that, retest, and fail. I think the broader market will provide the catalyst.

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We were able to close it beneath what I feel is the key resistance level. Meanwhile, the broader market is doing a bit of a backpedal, jumping back into tech, pot, and growth stocks at the expense of materials (XLB), Consumer discretionary (XLP - mainly yesterday), Financials (XLF, KRE), Insurance (KIE), Industrials (XLI), Home Builders (XHB), and telecoms (XLC is just FAANG, but checkout T and VZ having their runs cut off).

Full disclosure; I cycled my Puts intraday into a debit spread until I see it fail the breakout which could be tomorrow.

I expect that even if we open lower this stock has been such a darling that dip buyers will show up until it's obvious the market no longer favors the sector.

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After a review of many companies in the Retail Trade sector, I'm beginning to see a bigger pattern. A month ago Food Retail (KRO, SFM) front-ran all other non-discount stores known for in-person sales. Lowes, O'Reilly, Wallmart; the list goes on and they all have a similar pattern. All of them are overbought and beginning to flash sell signals on multiple indicators.

Pay special attention to Autozone. It looks juicy for a decline - possibly even more than Home Depot. I'd suspect that at least of piece of this special price action is owed to an inclination to reward Home Depot and Autozone for shortages in the Lumber and Chip market respectively, though I don't think this reaction is well conceived as both might be the biggest in their niche's but have sturdy competition that will prevent them from price-gouging for short-term profit.

Tldr; look to the grocery chains. They're a few days ahead of this particular curve.

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We just finished off a day where everything went up. We've had days like this pretty regularly, but they proceed with some profit-taking and a rotation. HD has shown no interest in price discovery the past few days and is just kind of floating and I'm waiting in the wings for it to flop.

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Also, note how the divergence is growing. Stock price beyond $290 is based on sentiment and momentum only.

Again, it's part of a bigger picture. AZO is even more ridiculous imho.

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Pull 'em.

If new money is entering the market and filling up the remaining reservoirs and turning typical value stocks into speculative vehicles then we've just hit a whole new phase that we're likely at something of a floor of. No short is safe.

PreferredStonk

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