Want bricks and mortar? Great! You can buy both bricks and mortar at Home Depot (HD) and Lowe’s (LOW). (November 23, 2015)
I want to look at Lowe’s ( NYSE:LOW ) and Home Depot ( NYSE:HD ). Even though, at least out here in California, the real estate market is slowing down, apparently the beneficiaries of that are Lowe’s ( NYSE:LOW ) and Home Depot ( NYSE:HD ). Look, it just kind of makes sense that people are going to be fixing up their homes if they’re not buying and selling them. So that gives us a REALLY good squeeze here on Lowe’s ( NYSE:LOW ). This is one of those that you can see that the stock had been in a volatility squeeze here. We like these because we look for the upside breakout. But they don’t always breakout to the upside, sometimes the breakout to the downside.
Now, John Bollinger has said about a third of the volatility breakouts that we see will actually be “fakeouts”. They’ll go one way and then they will reverse and move the other way. This would be one of those. One thing, just in general, I’m not really talking about this, but one thing in general I want you to keep in mind is this, as a stock falls lower it actually gets cheaper, and so it would be more attractive for money managers who are interested in buying stocks “on the cheap”. So always be wary of a stock that’s in a squeeze, especially if it’s kind of a large cap, like a Lowe’s ( NYSE:LOW ) or an auto maker, or whatever.
BEWARE of a company that’s actually not a “pie in the sky” good story company where maybe the earnings are just all “hot air”. If it breaks out to the downside just be aware that it’s not as clear cut that the stock is going to keep going lower. It may, in fact, reverse and go higher and that’s what the case is here. So here’s what I’m saying: you get this signal and it’s a pattern breakout to the downside, a volatility squeeze, but that pattern does not continue to be effective, in fact it goes the other way. So this is one of those where you can actually trade off the broken pattern.
I like this stock to the upside, I think it works. Home Depot ( NYSE:HD ) is another stock, similar deal here. It’s not quite as clear cut as Lowe’s ( NYSE:LOW ) was, but you can see the breakdown and then a bounce off the 50-day moving average, now this is moving higher. So generally speaking retail isn’t doing that great. But if you’re looking at Home Depot ( NYSE:HD ) and Lowe’s ( NYSE:LOW ) you’re going to find two that are bucking that trend.
Frankly, I think you can buy either one of them, you could buy both of them if you wanted, though, just know you’re not diversifying. They both kind of have this similar consolidation here. Look at Lowe’s ( NYSE:LOW ), it started consolidating over 8 months ago, almost 9 months ago. Home Depot ( NYSE:HD ) is really giving you the same consolidation, it’s kind of broken out a little bit earlier than Lowe’s ( NYSE:LOW ). But what I’m seeing is both of these have formed these high bases where I think they’ve got enough support to watch these stocks go significantly higher.
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