×

Home Depot shares are having their worst month in 8 years. But here's why some traders are getting bullish

Home Depot shares have been on shaky ground this month, falling 9 percent. But, one technically minded trader says its foundation is still solid.

"If we see another downdraft in the broad market that takes it down to the 200-day moving average, that could be a real good entry point to either add to old positions or add new positions," Matt Maley, equity strategist at Miller Tabak, told CNBC's "Trading Nation" on Tuesday.

Home Depot's 200-day moving average is $166.78, or 8 percent lower than its current price.

"It has come down quite a bit, but look how far it had rallied," said Maley. "It was ready to pull back anyway. So just the fact that the broader market sold off so sharply because of forced selling, this stock went down quite a bit."

A broader market sell-off last week pulled Home Depot shares sharply lower and erased its year-to-date gains. The stock is now down 4 percent in 2018 after being up by as much as 6 percent at the end of January. Its shares are on track for their worst monthly performance since June 2010. Home Depot is the third-worst performer on the Dow Jones so far this month.

Home Depot shares surged 42 percent in 2017, nearly doubling the Dow's 25 percent increase over that time.

Questions over how fast the Federal Reserve might raise rates have worsened Home Depot's sell-off this month. Investors have grown skittish on the threat of a more aggressive Fed willing to raise rates at a faster pace this year as inflation heats up. Higher interest rates could lead to a drop in home loans and refinancing, putting pressure on the home renovation and so-called DIY, or do-it-yourself, market to which retailers like Home Depot and Lowe's cater. The chances of a March rate hike are 78 percent, according to CME Group fed funds futures.

But, the Fed threat aside, its fundamentals game remains strong, says Mark Tepper, president of Strategic Wealth Partners.

"I view Home Depot really as a direct play on the consumer and the housing market and both of them are strong," Tepper told "Trading Nation." "This housing market right now is a sellers' market. There's just a ton of inventory which really incentivizes the consumer to renovate."

Home Depot is doing some renovation of its own. Tepper says updates to its stores should lead to more traffic and an increased amount of time spent at locations. On top of that, the retailer has updated its website and app, which has contributed to a 19 percent increase in online sales year over year.

"We like the stock at this level, and we think it's a buying opportunity," said Tepper.

Home Depot shares are down nearly 1 percent on Wednesday. Its shares remain in correction territory, having fallen 12 percent from a 52-week high set Jan. 29.

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more

Connect