I am up a few pennies on the Home Depot short which I posted on this blog last week. The stock is being stubborn in terms of not cracking, which is what I should largely expect from the consummate beast over the past few years.
In determining whether or not I should just cover the short and move on for scratch, I am keying off two similar stocks–Lowe’s and Sherwin-Williams, both in the mega housing retail complex. Lowe’s has seen a steep rally the past few weeks, perhaps helping Home Depot hang in there as fund managers deployed new retail money into the market. However, today, Lowe’s is printing a bearish engulfing candle on the daily chart, first below.
Next, SHW is trying to stabilize after an earnings gap-down. But my read here is that the stock is bear flagging before another push lower, outlined on the second chart below.
If my thinking is right and these two begin to crack, I should start to see Home Depot come in as well. Otherwise, I will likely seek an exit to the trade this week.
All three stocks continue to be abnormally, if not historically, extended on multi-year timeframes, adding to my thesis of looking for the rubber band to snap.
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