Home Depot Breaks Out to New Highs; Momentum to Continue

Published on Monday, 16 April 2012 16:24 Written by David Becker

New York, April 16^th, (TradersHuddle.com) – Strong Retail Sales allowed Home Depot (NYSE: HD) to rush out of the gates early in the trading session, making a new 52-week high as investors continued to show solid demand for home improvement items.  Retail sales increased 0.8% in March to $411.07 billion, according to the Commerce Department. Sales were up 6.5% year-over-year, which beat expectations. Economists surveyed had forecast a 0.3% gain.  Retail sales in February rose a revised 1.0%, compared with a previously reported 1.1%. Home Depot received added momentum after Piper Jaffray upgraded its rating on the stock to Overweight.

HD continued its smooth trend higher, rising nearly 21% during 2012.  Despite a housing market that is bumping along the bottom, HD has continued to show strength.  Support on the large cap home improvement stock is seen near the 20-day moving average at $50, which has held since November of 2011.  A break of this level would likely see a test of the 50-day moving average seen near $48.05.  Resistance on HD is seen near $52, which is the recent high, and then $55 which is the top end of a upward sloping channel created by the highs made in December and the highs made in mid February.

The RSI (relative strength index), which is a gauge of overbought and oversold levels, is printing near 67 on a daily chart, which is in the top end of the neutral range.  The weekly RSI on the other hand is printing near 85, and has remained in the overbought range for more than 3 months.

The MACD created a buy signal on Monday where the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread.  This signal usually forecasts and increase in momentum, which is likely going to continue to propel the stock to higher, levels.