Why you should not buy Home Depot Now

Home Depot (HD) has hit its 52 week high again for the second time this year.  It is a great company and a stock to match. This is a blue-chip stock with great fundamentals and competent management. However, with that said, the stock will come down a lot before it goes back and zooms past its highs. Why? because a company with a wide base of stock owners like HD  follows a predictable statistical pattern that will give an opportunity for you to get a discount.  So let us look at the probability distribution curves for 3 look-back periods and see how the stock behaves:

If you own the stock for 10 days and sell on the 11th day, the following curve tells you the probabilities of the stock going down 5%,10%, and 20% respectively:

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Price Move Risks in 11 Day(s)
Loss/Gain % Probability
Up Prob. % 59.03%
Down Prob. % 41.05%
No-Change Prob. % 0%
Total % 100.08%
-5% Value At Risk Prob.. 22.25%
-10% Value At Risk Prob.. 3.15%
-20% Value At Risk Prob.. 0%

 

 

If you own it for 20 days and sell on the 21st day, here are your odds:

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Price Move Risks in 21 Day(s)
Loss/Gain % Probability
Up Prob. % 62.06%
Down Prob. % 38%
No-Change Prob. % 0%
Total % 100.06%
-5% Value At Risk Prob.. 28.03%
-10% Value At Risk Prob.. 11.17%
-20% Value At Risk Prob.. 0%

 

Now if you own it for 50 days and sell it on the 51st day, you are much more likely to hit a draw-down time of –10%.  This is where you want to get into this stock at a discount.

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Price Move Risks in 51 Day(s)
Loss/Gain % Probability
Up Prob. % 64.77%
Down Prob. % 35.3%
No-Change Prob. % 0%
Total % 100.07%
-5% Value At Risk Prob.. 30.3%
-10% Value At Risk Prob.. 18.82%
-20% Value At Risk Prob.. 0%

 

So what is the hurry?  It is very likely that you will get a chance to get this stock at 5% or even 10% discount from its high within 50 days.

About Al Sabawi

Consultant Software Designer/Developer. Investor in Technology. Working on Quantopix Equity Analysis system. MySQL, Oracle, IBM DB2, PHP, C/C++ Java script.
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