2 Home Improvement Stocks Downgraded

Weak housing market trends and cautious buyers could slow demand

Deputy Editor
Aug 8, 2023 at 10:49 AM
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The shares of home improvement retailers Home Depot Inc (NYSE:HD) and Lowe's Companies Inc (NYSE:LOW) are taking a hit today, after Telsey Advisory Group downgraded both to "market perform" from "outperform." The analyst in coverage expects a slow-down related to weak housing market trends, noting that consumers will likely remain cautious with spending, particularly on big-ticket items and projects. 

LOW was down 1.9% at $219.02 at last check, headed for its sixth drop in the last seven days. The stock's 60-day moving average is getting tested amid today's pullback. The good news; the equity's 14-day relative strength index (RSI) of 31.8 is nearing "oversold" territory, which typically indicates a short-term bounce. Year-to-date, LOW is up roughly 10%, another potential layer of support.

Home Depot stock is down 1.7% at $323.70, continuing to fall from its Aug. 1 six-month peak at the $335 level, though support at its 20-day moving average could provide a cushion. Year-to-date, HD is up 2.7%. 

Call traders have taken an interest in HD recently, much more so than its peer, as 1.50 calls have been bought for every put in the last 50 days at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks higher than 95% of readings from the past year, showing calls being picked up at a faster-than-usual rate. 

One common thread between the HD and LOW is each have a low Schaeffer's Volatility Scorecard's (SVS), sitting at 14 and seven, respectively (out of 100).  In other words, both stocks have consistently realized lower volatility than their options have priced in, making them potential premium-selling candidates.


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