One Home Improvement Company That Is Set To March Upwards

One of the largest home improvement companies, Lowe’s (NYSE: LOW), has recently reported above-expected quarterly profit gains. If we look at the 6 month stock chart for Lowe’s, we can see a steady uptrend in stock prices.

It’s also trading above its 50-DMA (DMA stands for Daily Moving Average and denotes a stock’s general trend) and has been since July, a classic bullish indicator that suggests the uptrend will continue. Trading volume had also reached a 6-month high in mid-August, further promoting the uptrend.

Buyer confidence usually means that the stock will continue to rise. Here’s the stock chart for Lowe’s, courtesy of StockCharts.com, as of 12pm on August 23, 2013 (note how the stock broke out of the trendline at the same time the volume skyrocketed):

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Whenever stock breaks out like that on spiking volume, it is a great buying opportunity. Not only is it trading well-above its 50-DMA, it has broken the trendline of the past four months. When this happens, as a general rule of stocks, the value will continue to climb. The trendline in this case is what we call an upper trendline, since it runs along the peaks. But now we could be looking at that critical juncture when the upper trendline becomes the lower trendline; that is, a trendline that travels along the bottom of the bars.

So, a strong showing by one of the largest home improvement retailers must be a strong indication that the housing market is beginning to rebound, right?

But hold on…if we look at the stock chart for the very same day for Home Depot (NYSE: HD), Lowe’s biggest rival, we see a very different story (chart courtesy StockChart.com):

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It’s almost an exact inverse chart to the one for Lowe’s. Note that despite the strong trade volume rate towards mid-August, stocks for Home Depot continued to slide. They are currently trading well below their 50-DMA and are on a strong downward trendline. This suggests Home Depot stocks will continue to lose value in the future. It wouldn’t be surprising to see it dip below its 200-DMA (the red line) before any sign of recovery could be expected.

Such conflicting signals from the two largest home improvement corporations completely flies against the common story we hear about how the housing market is on a strong rebounding. But if you’re an investor looking to invest in the home improvement sector, it only takes a quick study of these two charts to see which one is the winner.

Why might this be? Perhaps more people are shopping at Lowe’s. Perhaps you yourself prefer Lowe’s over Home Depot. In the retail sector, it’s all about customer experience. People get a feel for a store almost immediately. And that feeling spreads rapidly.

But like I said, whenever a stock breaks out on spiking volume, like what is happening right now with Lowe’s, it is a golden opportunity for investors. And that’s just one example of how reading a chart could turn into big profits.

 

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