Will Home Depot and Lowe's Get Nailed?

By MoneyShow.com  AUG 08, 2013 3:25 PM

Rising interest and stock valuations have dampened investor enthusiasm for homebuilder stocks since their May highs.

 


Even though the Dow Industrials (INDEXDJX:.DJI) and the S&P 500 (INDEXSP:.INX) were down less than 0.5% on Wednesday, the drop in stocks this week has gotten quite a bit of attention. For the major averages, the decline has just taken them back to minor support at their still rising 20-day EMAs.

There has been further deterioration in the market internals as the NYSE Advance/Decline has dropped below the late July lows and is now in a short-term downtrend. The majority of the daily technical studies have not yet turned negative.

The futures were higher this morning, and I would look for a range to develop over the near term but it is also possible that the market is building a top that will eventually result in a deeper correction. Some sectors were hit much harder Wednesday as the Philadelphia Housing Sector (INDEXNASDAQ:HGX) was down over 2% and most of the homebuilders are down sharply from their spring highs.

Will two of the largest home improvement stocks, Home Depot, Inc. (NYSE:HD) and Lowe's Companies Inc. (NYSE:LOW), now also see heavy selling?


Click to enlarge

Chart Analysis: Home Depot had an all-time high in May at $81.56 and last week's high was just $80.50. HD dropped 1.8% on Wednesday.
The daily chart of Home Depot shows a potential double top, line e.

Click to enlarge

Lowe's Companies, Inc. did make a new high Tuesday at $45.46 and now has weekly support at $43.38.
The daily chart of Lowe's shows a potential short-term double top and dropped back to its WMA on Wednesday.
What it Means: Of these two key home improvement stocks, Lowe's looks the weakest. Both stocks bottomed out ahead of the homebuilders, and many are wondering when or where the homebuilding stocks will bottom out.

Editor's Note: This article was written by Tom Aspray of MoneyShow.

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