Let’s take a different turn on the typical earnings trade, in which we recommend an option trading play on a company that is due to report within a few days. Instead, we’re going to look at a post-earnings trade that looks attractive amid the market’s recent weakness.
Home Depot (NYSE: HD) reported earnings before the open on Tuesday, and the numbers were solid all around. Earnings beat by five cents — 36 cents vs. 31 cents — and revenue beat as well. The company also threw in higher guidance on earnings and raised its quarterly dividend. What’s not to like?
Unfortunately for the stock, the report was ill-timed, as the market has been rocked this week by the turmoil in the Middle East and surging oil prices. The result was that the shares fell by more than 6% from Tuesday’s post-earnings high to Wednesday’s intraday low. The good news is that the stock is finding support at its 20-day moving average, a trend line that has been solid throughout the past couple of weeks. Read more…
The Home Depot, Inc. (NYSE: HD) — This home improvement retailer rose from $30 to over $39 following our last buy recommendation in the Trade of the Day on Sept. 14. But the stock is now fundamentally overpriced, and commodity inflation could cut into future profits.
S&P cut their rating to “sell” from “hold,” because compared to their competition, the stock is “overpriced” with “weak growth prospects.”
Technically, HD flashed a Collins-Bollinger Reversal (CBR) sell signal (our proprietary internal indicator) on Tuesday. On the same day, the Moving Average Convergence/Divergence (MACD) registered a bear signal.
Traders should sell current short- and intermediate-term holdings or protect positions by writing options. Short sellers may want to consider HD for a decline to $32-$34. Read more…