Dollar Tree, Inc. operates discount variety stores in the United States and Canada. Its stores offer merchandise at the fixed price of $1.00. The company’s stores provide consumable merchandise, which includes candy and food, and health and beauty care products; and everyday consumables, such as paper and chemicals, and frozen and refrigerated food. Its stores also offer various merchandise that include toys, durable housewares, gifts, party goods, greeting cards, softlines, and other items; and seasonal goods consisting of Valentine’s Day, Easter, Halloween, and Christmas merchandise. The company operates its stores under the names of Dollar Tree, Deal$, Dollar Tree Deal$, Dollar Tree Canada, Dollar Giant, and Dollar Bills.
Take a look at the 1-year chart of Dollar (NASDAQ: DLTR) below with my added notations:
Over the past 3 months DLTR has created an obvious trendline of resistance (red), and a trendline of support (green). Being that the two trendlines are diverging from one another, they combined have the stock trading within a rare chart pattern known as a broadening top, or a megaphone. The formation is bearish in nature, and implies an impending decline for DLTR.
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The Tale of the Tape: DLTR has formed a broadening top pattern. A short trade could be entered anywhere near the trendline resistance, with the expectation of an eventual fall back down to the trendline support, at minimum.
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