Editors Note:

I said I was going to add HD back in as a new play when the drop ended but maybe we can get lucky twice in a row and buy it at support at $145 this time.

New Watch List Entry:

HD - Home Depot - Company Description

The Home Depot, Inc. operates as a home improvement retailer. It operates The Home Depot stores that sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me (DIFM), and professional customers. The company offers installation programs that include flooring, cabinets, countertops, water heaters, and sheds; and professional installation in various categories sold through its in-home sales programs, such as roofing, siding, windows, cabinet refacing, furnaces, and central air systems, as well as acts as a contractor to provide installation services to its DIFM customers through third-party installers. It primarily serves homeowners; and professional renovators/remodelers, general contractors, handymen, property managers, building service contractors, and specialty tradesmen, such as installers. The company also sells its products through online. It operates through approximately 2,278 stores, including 1,977 in the United States, including the Commonwealth of Puerto Rico, and the territories of the U.S. Virgin Islands and Guam; 182 in Canada; and 119 in Mexico.

On August 14th, HD reported earnings of $2.25 that beat estimates for $2.21. Record revenue of $28.11 beat estimates $26.47 billion. They raised guidance for the full year for 5.3% revenue growth. They guided for an 11% rise in earnings to $7.15 in May and raised that guidance in this report to 13% and $7.29.

Despite posting record results and raising guidance, the stock was crushed for a major loss. The conference call started with analysts asking how long the good times can continue since the housing market has been strong for so long. HD reps answered the question well then immediately got hit with a bigger bomb. How can your sales continue to rise when you can now buy many of your products cheaper on Amazon. The analysts even asked how much Alexa was hurting HD's business. Every question seemed to be about why Amazon was stealing market share and why HD sales were not falling. Sentiment turned bearish and shares fell $9 over the last four days.

We were stopped out on the big drop. There is nothing wrong with the company. There is strong support at $144.50.

We entered the HD position on a dip in July and with support at in the $144-$146 range, I am recommending we try to buy another dip.

With a HD trade at $145:

Buy Jan 2019 $155 call, estimated $7.50, no initial stop until entered.
Sell short Jan 2019 $170 call, estimated $4.00, no initial stop until entered.
Estimated net debit $3.50-$4.00.

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