Mad Money. Dragged down by the gravitational pull of negative European news, home improvement stocks have taken a real beating lately. But Jim Cramer thinks many could be ready to rebound, and even head higher. To gain further insight from the charts, he consulted with Suz Smith of Strategic Portfolio Solutions, the co-founder of ExplosiveOptions.net, and Cramer’s colleague at RealMoney.com.
Despite the negative action in the broader averages on Tuesday, Smith also found that that some home improvement stocks could be ready to breakout to the upside. Specifically, she named Masco, Sherwin-Williams and Whirlpool. “I think this is a bold and most definitely contrary call, and it is worth taking a closer look,” the “Mad Money” host said.
One stock that Smith said she would stay far away from was Home Depot. Daily charts indicated it had pulled below its long-term 200-day moving average. The last few times Home Depot pulled back this far in February, it had a sharp pullback rally. However, she thinks it is still too soon to reach for Home Depot at these levels.
Instead, Masco showed promise for Smith. She expects Masco to hold above its 200-moving average at $28.70, and that the recent pullback in the stock will be short-lived. One technical indicator showed that the stock is in extreme oversold territory, which is why she expects a rebound within a few days.
Sherwin-Williams has also held up better than other stocks in the home improvement cohort. Looking at the daily chart, Smith found that the stock has been trading sideways since its run back in April. She thinks it could be creating a springboard to jump into the next leg of the rally.
Additionally, Smith noted that the bollinger bands on Sherwin-Williams’ chart have contracted as the stock has traded sideways. Bollinger bands are two green lines on a chart that are above and below the actual stock price that measure volatility. She interpreted this as good news for the stock, because when the bands get too close, there could be an explosion.
Smith said Whirlpool also had an intriguing daily chart. Even though the stock hasn’t done much lately, Smith noted that the chaikin money flow oscillator has been very strong, which indicates that big institutions are holding the stock and buying more into weakness. She said if it can go up to $179, then it could shoot up to $185.
“With the Fed on hold, I think the whole cohort could become a nice place to hide, even as each one does have some foreign exposure,” Cramer said.