--Don
People buy stocks for lots of reasons--improving fundamentals, improving chart patterns, new products, tips from their barbers. I like stocks with as many reasons as possible for other people to buy them after I do. Consequently, I do look at charts to get a hint about how people who look at charts might feel about a stock, though I consider charting as an attempt to find an "easy" way to evaluate a security and worth only a small amount of attention. Worth more attention is what the stock is worth compared to other available investments--the risk-free rate of return, for example. If an investment gets much more complicated than that (drug companies, for example, which I don't understand), I just throw up my hands and go find something easier to value.
Which brings me to HD, a company with something like $1.3 billion in debt , about $6 billion in cash and $30 billion in shareholder's equity, in other words, a strong balance sheet. Also, whether the housing market is good or bad, as long as unemployment doesn't get out of hand, there will continue to be strong demand in the home improvement market. They even announced that they will expense employee options, a small number for them but the right thing to do.
As for your chart of the Dow, all that proves is that stocks in general went down--duh. Yesterday's news. Daddy Warbucks learned his investment philosophy from Annie when she sang "Tomorrow," not from Paul McCartney singing "Yesterday." The chart on HD, for those of you in love with the simple-minded market approach of chartists, is in a breakout upmove. The MACD as well as fast and slow stochastics all show an upside breakout. A good chartist would close a short position on seeing these developments.
Assuming you actually own puts on HD, good luck. I have no philosophical problem with either shorting stocks or being long puts. As a practical matter, however, HD is absolutely the wrong stock to hold short or to buy puts on. It is among a handful of first-rate undervalued stocks. For example, why this stock has a P/E lower than the S&P 500 but a growth rate higher than the S&P 500 is beyond me.
Best,
--Steve |
