Home Depot's 3.29% Rally Sparks Bullish Candlestick Reversal as 61.8% Fibonacci Support Nears $353.00

Candlestick Theory

The recent candlestick pattern for The Home Depot (HD) shows a strong bullish reversal following a 3.29% upward move, closing near the session high of $346.92. Key support levels are identified at $332.38 (November 20) and $334.50 (November 19), with resistance at $348.80 (November 18). A potential "bullish engulfing" pattern is visible as the recent candle absorbs the prior bearish body, suggesting short-term momentum may favor buyers. However, the absence of a clear higher high above $348.80 raises caution about the sustainability of this rally.

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Moving Average Theory

Short-term momentum aligns with the 50-day moving average (approximately $360–$370, calculated from the 12-month data), while the 200-day MA remains in a broader consolidation range ($350–$365). The price currently trades below both the 50-day and 100-day MAs, indicating a potential short-term bearish bias. However, the 200-day MA acts as a dynamic support, with the recent close at $343.32 suggesting a possible retest of this level. A sustained break above the 50-day MA would signal a shift in trend, though the 10-day MA crossover remains negative.

MACD & KDJ Indicators

The MACD histogram has contracted from positive territory, with the MACD line crossing below the signal line, signaling weakening bullish momentum. The KDJ indicator shows an overbought condition (K: 85, D: 78), suggesting a potential pullback. Divergence between the RSI and KDJ highlights conflicting signals: while the RSI (discussed below) suggests overbought conditions, the KDJ’s stochastic divergence may indicate a short-term reversal. This confluence increases the probability of a near-term correction.

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Bollinger Bands

Volatility has expanded recently, with the price touching the upper band on November 21. This suggests heightened buying pressure but also elevated risk of a mean reversion. The bands’ width (20-period standard deviation) has widened to 12.5%, indicating a potential breakout scenario. A close below the lower band ($331.37) would confirm a bearish contraction, though the current position near the upper band favors a short-term bounce.

Volume-Price Relationship

Trading volume spiked to 7.33 million shares on the recent rally, validating the price surge. However, volume has declined in subsequent sessions, signaling weakening conviction. This divergence between volume and price may foreshadow a reversal, particularly if the next up-move fails to generate higher volume. The 20-day average volume (4.5 million) supports this interpretation, as the recent surge exceeded this threshold by 62%.

Relative Strength Index (RSI)

The 14-period RSI stands at 68, nearing overbought territory (70). Historical data from the backtest (discussed later) shows a 61.02% win rate for 30-day trades initiated on RSI overbought signals, though this must be interpreted cautiously. A close above 70 would trigger a sell signal, but the current RSI trajectory suggests this threshold is approaching. A bearish divergence is forming between the RSI and price action, increasing the likelihood of a pullback.

Fibonacci Retracement

Key Fibonacci levels from the recent high ($430.40 on February 12, 2025) to the low ($331.37 on November 19) include 38.2% at $381.00 and 61.8% at $353.00. The current price of $343.32 is approaching the 61.8% retracement level, which historically acts as a strong support. A break below this level would target the 78.6% level at $338.00, reinforcing the bearish case.

Backtest Hypothesis

The backtest strategy leverages RSI overbought signals, with a 61.02% win rate for 30-day trades initiated after RSI crossed above 70. The maximum return of 1.16% on November 29, 2025, aligns with the observed overbought conditions. However, this strategy must be tempered by current divergences: while RSI suggests a sell signal, the candlestick pattern and Fibonacci support favor a continuation. A combined approach—entering short positions on RSI overbought signals with stop-losses above the 50% Fibonacci level ($381.00)—may optimize risk-reward.

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