Dollar Tree, Inc. operates variety retail stores in the United States and Canada. It operates in two segments, Dollar Tree and Family Dollar. The Dollar Tree segment offers merchandise at the fixed price of $1.00. It provides consumable merchandise, including candy and food, and health and beauty care products, as well as everyday consumables, such as household paper and chemicals, and frozen and refrigerated food; various merchandise comprising toys, durable housewares, gifts, stationery, party goods, greeting cards, softlines, and other items; and seasonal goods, which include Valentine’s Day, Easter, Halloween, and Christmas merchandise. The Family Dollar segment operates general merchandise discount retail stores that offer consumable merchandise, which comprise food, tobacco, health and beauty aids, household chemicals, paper products, hardware and automotive supplies, diapers, batteries, and pet food and supplies; and home products, including house wares, home décor, and giftware, as well as domestics, such as blankets, sheets, and towels.
Take a look at the 1-year chart of Dollar (NASDAQ: DLTR) with the added notations:
DLTR had been working its way lower for most of the past year, while always managing to hold a clear level of support at $72.50 (red). However, a couple of weeks ago, the stock broke that key support, which sent DLTR to a new 52-week low. Now that DLTR is rallying higher, traders could expect $72.50 to act as resistance.
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The Tale of the Tape: DLTR has broken a key support level of $72.50, which was also a 52-week low breakdown. This should signal even lower prices ahead for the stock. A short trade could be entered on DLTR on a rally back up to $72.50, with a stop set above that level. A break back above $72.50 would negate the forecast for a move lower and a long position could be considered instead.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT
Follow me on Twitter: @cmtstockcoach