Stock Markets Analysis & Opinion

Home Depot Sets Stage for Elliott Wave Decline

 

Home Depot (NYSE:HD) reported its Q4 2023 earnings earlier this week. The company didn’t impress much as nearly all revenue metrics showed YoY declines, except the headline number. That’s understandable, though, since 2022 was exceptionally strong for the home improvement retailer and prior-year comparisons are hard to beat.

This also helps explain why the earnings announcement didn’t move the stock price much in either direction. Investors already knew what to expect and the company’s guidance for 2024 was met with little more than a yawn. The problem is that the valuations of businesses, which fail to maintain growth, are often punished by the market. A look at the daily chart of Home Depot stock reveals that its slowdown is coming at a very interesting juncture.Home Depot Stock-Daily Chart

Home Depot‘s daily chart visualizes that the decline during the first half of 2022 was a five-wave impulse pattern. It is labeled 1-2-3-4-5 in wave (a), where the five sub-waves of the third wave are also visible. The correction, which, according to the Elliott Wave theory, follows every impulse, in this case is an A-B-C flat correction in wave (b). Its wave C is now bumping into the resistance of the 61.8% Fibonacci level, where corrections often end.

If this count is correct, a notable bearish reversal can soon be expected in Home Depot stock. Wave (c) is supposed to breach the bottom of wave (a), which translates into downside targets below $260 a share. From the current level of roughly $365, that would be a decline of about 30%, bringing HD’s P/E to the more reasonable for a slow-growth company ratio of ~15.

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