HD does a dead cat bounce, it's still too early to buy into it
18 Dec, 201813 min read
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HOME DEPOT INC delivered good returns on Tuesday. It grew by +1.23% to close at 170.04. It is currently trading -20% below it's 52 week high of 213.85.
HD showed a strong down trend over the last 3 months. During this period HD lost -19.67% and saw a maximum drawdown of -20.91%. There was a short signal during this period which returned +12.21%.
HD has been outperforming the SP500 index in recent time. Over the last 2 years 11 months and 14 days, HD outperformed the SP500 index on 52% days.
During the last three months HD was mostly loss making and delivered on average -0.33% per day. It's best return during this period (of +2.87%) was on Wednesday, 7 Nov, 2018. While it's worst loss in the same period (of -4.34%) was on Wednesday, 17 Oct, 2018. There was initially a bearish trend during this period which started on 17 Oct, 2018 and went on till 24 Oct, 2018. The trend delivered -8.82% losses to investors. This was followed by a bullish trend that started on 26 Nov, 2018 and ended on 28 Nov, 2018. This bullish trend delivered +5.0% to investors.
HD had 8 profitable and 4 loss making months over the last year. During the last year, number of profitable months of HD and SP500 index were the same. HD was also a more risky investment than SP500 index as it's worst month in the last year, Oct 2018, returned -15.28% compared to -7.75% returned by SP500 index in Dec 2018. HD and SP500 index, both had periods of 6 consecutive profitable months. It is interesting to note that both HD and SP500 index significantly outperform during months when quarterly/annual results are announced.
I'm only rich because I know when I'm wrong..I basically have survived by recognizing my mistakes.
-- George Soros
HD is becoming less volatile overall. In comparison, the SP500 index is seeing a rise in volatility. During the last three months, there was a significant surge in HD's volatility from 20 Sep, 2018 to 10 Dec, 2018. While there was a significant surge in the SP500 index's volatility from 19 Sep, 2018 to 29 Oct, 2018.
Advanced/professional short-term investors should note that HD has significant positive skewness in it's return distribution. This indicates that investors can expect HD to recover from drawdowns quickly. Which makes HD a good candidate for investing on short-term bullish trends or even counter-trends hoping for a pull-back.
Investors trading in HD derivatives at this moment can consider 'Covered Call' options strategy to receive better risk-adjusted returns.
HD has more chance of extreme outcomes than the SP500 index. Therefore, HD must receive a lower allocation than SP500 in your portfolio. SP500 index usually has shorter drawdown period than HD.
On a general note (since you are interested in HD), NSPR has performed really well and deserves to be closely tracked for investment opportunities.
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