Power to The Home Depot — compliments of the S&P 500

After a nice start to the year, The Home Depot has languished since May vs. peers like Lowe’s and is off 5% from its mid-July high. Looking for answers on what’s next, we wanted to see how trading in THIS TYPE OF MARKET impacts trading in The Home Depot. First, we needed to accurately identify when the S&P 500 has traded like this in the past, and then looked at how investors traded in The Home Depot in the next 3 months. The results are, well, “constructive”.

We found 26 highly correlated instances of this approximately 5 month pattern in the S&P 500 over the past 30 years. When the market has traded like this historically, investors have gotten VERY bullish on The Home Depot over the next few months. In 22 of the 26 highly correlated historical occurrences, HD was up over the next 3 months and the average return of all occurrences was 13.27% and 10.70% on a relative basis.

As usual, the price pattern, and our ability to objectively capture the impact of investor behavior to project future returns, makes a compelling case that is difficult to ignore.

Year to date price chart of The Home Depot (HD)

Price chart of the S&P 500 since May 20th

3 month performance of HD each time the above pattern in the S&P 500 has occurred historically