Welcome to the new Pit Report! 

Each week, we’ll feature a new stock and, throughout the week, my team and I will focus on the 

• • • The stock’s business and future
    • What the charts are saying
    • And what options market is telling us about the stock

With the University of Georgia winning the College Football Playoff earlier this week, we figured the perfect thing to do would be to feature a company headquartered in the Peach State.

And the largest by market cap is … Home Depot (HD).

As of this writing, Home Depot is trading at $329. This is well off its 52-week high of $394.31, but also above the 52-week low of $264.51.

The stock is, pretty much like the S&P 500, in the middle of its range.

The Positives for Home Depot

It all starts with fewer people moving.

I currently have a mortgage of 2.75% for the next 28 years. If I sell my house and move, I can do so and make some money on my house … but my mortgage rate will balloon to about 7%.

My situation is the same for millions of people who bought houses over the last 5 years … There is little motivation to move for the time being.

So what does that mean? If I want a nicer house than the one I have, what am I going to do?  I can put in a pool, build an addition or simply make the house much nicer inside.

If that’s the case, where are my contractors – or if I do it myself (which I am not), where am I – getting supplies?

The Home Depot. (Or maybe Lowe’s.)

Home Depot is usually a bit cheaper than Lowe’s and, in my experience, offers worse service. Contractors and DYI types don’t care about that – they care about price.

This plays right into Home Depot’s  hands and should be a driver of continuing demand as homeowners upgrade kitchens and baths, build additions or plus-up their houses in other ways.

My wife currently wants to upgrade all of our lighting. Where did we go to look for lights? You guessed it … Home Depot

And the population shift of recent years toward the south and west – a path we took – means more grills, outdoor furniture and outdoor kitchens (the next thing on our list).

Downside for Home Depot

If the economy enters a real recession – not a small one – and many people, especially in higher paying jobs, get fired, that will crush demand.

We have seen demand start to falter in some clothing retailers. And a company that typically beats them on price, Amazon, is near a 52-week low.

These are factors that bode poorly for Home Depot.

Another potential major factor is if the housing market falls sharply. Cheaper homes would offset higher rates … and that could cause some people who have extra cash to choose to upgrade houses rather than improve their current residence.

This would be a serious problem for Home Depot.

All told, if you have an outlook longer than a year … I think you are probably fine buying here.

Near term, though, despite the stock having a golden cross, it has flatlined since the beginning of November.

The dividend is nice, but I think near term there could be some headwinds here at the macroeconomic level.

If I got long when it was near its 52 week low, I would take my money and move on, or at a minimum look to buy protective puts, because I see more downside risk than upside.

Later in the week Licia Leslie is going to break down the chart in a more near- term perspective and tell you what she sees in the trend lines and candles

Your Only Option,

Mark Sebastian