The Home Depot, Inc. is the largest home improvement retailer in the United States, supplying tools, construction products, and services. They have been doing good recently. However, in the wake of recent developments related to COVID-19, I think there will be a fundamental change in how people will spend their money in the coming few months.
Whenever an economy goes through a crunch, people tend to spend more towards taking care of their day-to-day essentials rather than spend on home improvement and construction. I would rather spend on utilities, food, and save for health related items than go buy me a new barbecue grill, or get my kitchen upgraded with cherry wood cabinets. Priorities change and shifts from consumer discretionary to consumer staples.
My thought process is simple and based on how people behave. I am not going to complicate it by getting into detailed annual financial summaries or read analyst view points. Supply chain disruptions along with how these big stores react to take safety measures will cause inefficiencies and lead to higher cost of doing business. Sooner or later, market will take notice and reflect that in its stock price. I want to take advantage of that.
Here is a Price Action based technical view. Keep in mind that the short I am playing for this name has not much to do with technical, but more towards the fundamentals. However, it is good to have price action based analysis of a stock supporting your theory.
Monthly chart of $HD shows a nice bounce from the March lows, when the virus news broke out. We have come up significantly from that level and still the current monthly bar is under construction.
The below chart is a weekly view of $HD and clearly shows that it managed to close the week ending April 18th, 2020 with a Bullish price action at 50 week moving average (Green line on the chart). I am already holding January 2020 - $180 strike puts for $HD. I will add to my position once I get a Bearish Weekly close at this Green line.
This is not a short-term play. I will need time on my side. That is why I got into put options that are 18 months out. It buys me enough time to wait for my trade to play out. The day to day moves of a stock will have minimal impact.