Shares of Home Depot (HD - Get Rating) have been in a sideways trading range since August and a rectangle pattern has formed.

HD is the world’s largest home improvement specialty retailer, operating nearly 2,300 warehouse-format stores offering more than 30,000 products in store and 1 million products online in the United States, Canada, and Mexico.

The company has been gaining on increased demand in home improvement due to stay at home protocols from the pandemic. HD has seen strong sales growth due to its technology infrastructure that allowed consumers to make purchases online.

The company has a current ratio of 1.3, indicating it has enough cash on hand to meet short-term debt obligations. It had $14.1 billion in cash as of the end of the last quarter. The company is also profitable with a net profit margin of 9.9% and an ROIC of 32.6%.

HD’s sales grew 8.5% last year and earnings grew 8.7%. The company is expected to report its latest financial results on November 17th. The stock is fairly valued with a P/E of 24.8 and a Price to Sales ratio of 2.5. The company has shown bullish mid and long-term momentum, but is down over the last week and month.

The stock is rated a “Buy” in our POWR Ratings system, with a grade of “A” in Trade Grade and Industry Rank, and a “B” for Buy & Hold Grade and Peer Grade. The stock is also ranked #7 in the Home Improvement & Goods industry.

Take a look at the 1-year chart of HD below with added notations:

Chart of HD provided by TradingView

After hitting a peak in August, HD has fallen into a sideways trading range. While in the range, the stock has formed a resistance level at around $292.50 (red), and a level of support at around $262.50 (green).  At some point, the stock will have to either break the resistance or the support.

The possible long position on the stock is on a breakout above $292.50. The ideal short opportunity would be on a break below $262.50.

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HD shares rose $3.87 (+1.43%) in premarket trading Tuesday. Year-to-date, HD has gained 27.99%, versus a 5.25% rise in the benchmark S&P 500 index during the same period.

About the Author: christian

Christian is an expert stock market coach at the Adam Mesh Trading Group who has mentored more than 4,000 traders and investors. He is a professional technical analyst that is a certified Chartered Market Technician (CMT), which is a designation awarded by the CMT Association. Christian is also the author of the daily online newsletter Todays Big Stock. More...

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