Charts point to trouble for this 'Amazon-proof' retailer: Technical analyst

Home Depot shares are up around 15 percent this year, but one top technician warns that the big-box retailer could be in trouble as it gears up to report earnings Tuesday before the bell.

Fellow big retailers Target and Wal-Mart are also scheduled to report earnings this week, and the options market is implying about a 5 percent move in either direction for Target, a 4 percent move for Wal-Mart and a 3 percent move for Home Depot. This comes after a tumultuous week for department stores after their earnings reports. J.C. Penney saw the biggest drop — falling 28 percent, Macy's sank 12 percent, and Kohl's and Nordstrom fell 8 percent and 4 percent respectively.

While Home Depot has managed to buck the downtrend in the broader retail space – commonly referred to as "Amazon-proof" and trades just 4 percent from its all-time high in May – Carter Worth of Cornerstone Macro warned "this great winner is at a difficult level."

"The stock has broken out to new highs, but it could never make a relative high [to the S&P 500]," Worth said Friday on CNBC's "Options Action." "Even as it's gone up absolute, it has not been performing relative to other equities."

While looking at a chart of Home Depot, "we've just moved 8 percent from the bottom of this channel to the top, and I don't think you're quite ready to break out," Worth said. Home Depot's stock has seen gains in 13 of the last 15 sessions.

"I think the next move is down, and I want to bet against Home Depot having rallied steeply going into its earnings."

Home Depot shares were trading in the $154.66 range midday Monday.

Sign Up for Our Newsletter Options Action

Insight directly from the members of our Options Action panel
Get this delivered to your inbox, and more info about about our products and services.
By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.

Latest Video

Tutorials

Host Bio

  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

Options Action Traders

From Our Sponsor

Sign Up for Our Newsletter Options Action

Insight directly from the members of our Options Action panel
Get this delivered to your inbox, and more info about about our products and services.
By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.