Nearly all of our bullish trade ideas over the past few months have been bullish pattern breakouts, which isn’t surprising given that the broader market remains in an uptrend — naturally producing more of those setups. However, a few names have pulled back from recent highs, creating potential dip-buying opportunities. One such stock is Home Depot (HD), which has declined nearly 10% from its early-September high. The pullback is now approaching both its flat 200-day moving average and a key support zone in the low-380s— a critical level that marked the breakout point in late July and the breakdown zone from March. This confluence makes the current area technically significant. Given that context, HD may offer a favorable risk-reward setup for a mean-reverting bounce. While it’s challenging to pinpoint an exact target, a reasonable first objective would be a retest of the recent highs from a few weeks ago near 425. If that rebound unfolds, it could even begin to form a larger bullish pattern — though that’s several steps ahead for now. The immediate focus is on whether buyers show up near support. It’s also worth noting that the 14-day RSI now has slipped below 30, the first such oversold reading since the March lows — another sign that HD may be near short-term exhaustion on the downside. Turning to the weekly chart, HD’s four-week decline now has approached 10%, marking one of the largest four-week drops since 2021. Historical context suggests that this kind of selloff often represents capitulation rather than continuation. Specifically, looking back over the past several years, there have been nine prior four-week declines of roughly 10% or more. In eight out of nine instances, those pullbacks coincided with a key bottom or tradable low, followed by strong rebounds soon thereafter. The one exception was in early 2022, which unfolded during the broader market’s transition into a bear market. This recent history, combined with the current proximity to major support and the daily oversold condition mentioned above, adds to HD’s potentially compelling risk/reward scenario. Zooming out to the monthly chart (log scale), the recent 10% pullback barely registers in the bigger picture. From this broader perspective, it appears to be just a minor dip within what could be a substantial multiyear bullish base — a developing cup-and-handle pattern that has been forming over the past FOUR years. Home Depot has attempted to break out to new all-time highs multiple times since 2021 but has yet to sustain a follow-through move. However, each attempt has resulted in a higher low, suggesting persistent underlying demand. If that demand returns near current levels, it could complete this long-term pattern and set the stage for a meaningful breakout. Looking back over more than two decades of price history, HD has a consistent tendency to emerge from long consolidations with powerful follow-through rallies lasting months — and often years. Given that the stock has been essentially flat since 2021, this next breakout effort could be the one that propels it decisively through prior highs — and beyond. More broadly, given the strong advances many stocks have seen since the April lows, it’s reasonable to expect that similar scenarios could begin to emerge elsewhere. In other words, areas that have become stretched or overbought may soon see those conditions normalize, particularly as prices retest key support zones. When that happens — as we’re seeing now with Home Depot — it can create favorable dip-buying opportunities. Thus, how HD responds to this setup may offer a useful template for other large-cap leaders in the weeks ahead. If buyers step in here, it could confirm that the market’s underlying strength and appetite for quality names remain intact, even amid normal corrective phases. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
