Dollar Tree Reports Below a Key Moving Average

Dollar Tree, Inc. (DLTR) operates discount variety stores focusing on suburban areas. The company's consumable items include candy, foods, health and beauty products, and frozen and refrigerated food. Household items include paper, plastics and chemical-based products. Variety items include toys, housewares, party supplies and greeting cards. For holidays, the stores feature seasonal items.

The stock closed Tuesday, Aug. 28, at $93.38, down 13% year to date and deep in correction territory at 19.9% below its 2018 high of $116.65 set on Jan. 31. However, the stock has posted a gain of 16.7% since its 2018 low of $80.01 set on June 4.

Analysts expect Dollar Tree to report earnings per share of $1.15 to $1.17 when the discount retailer releases results before the opening bell on Thursday, Aug. 30. A concern is that the company missed estimates in its earnings reports for the past two quarters released on Feb. 7 and on May 31. Zacks Equity Research thinks that the third time is the charm, and the research firm is looking for the retailer to beat earnings estimates. (See also: Why David Einhorn Is Scooping Up Retail Stocks.)

The daily chart for Dollar Tree

The daily chart for Dollar Tree shows that the stock has been below a "death cross" since May 16, when it closed at $95.29. A "death cross" occurs when the 50-day simple moving average falls below 200-day simple moving average and indicates that lower prices lie ahead. When this negative formation is in place, a trading strategy is to sell strength to the 200-day simple moving average, which was doable on May 24 at $96.24 just days before the decline to the year-to-date low of $80.01 set on June 4. The stock is currently below its 200-day simple moving average at $97.43 and above my monthly value level of $88.66, which is shown as a horizontal line.

The weekly chart for Dollar Tree

The weekly chart for Dollar Tree is positive, with the stock above its five-week modified moving average of $91.37 The stock is above its 200-week simple moving average of $482.47, which is the "reversion to the mean," last tested as a buying opportunity during the week of June 8, when the average was $80.50. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 70.73 this week, up from 63.38 on Aug. 24.

Given these charts and analysis, investors should buy Dollar Tree shares on weakness to my monthly value level of $88.66 and to the 200-week simple moving average of $82.47 and reduce holdings on strength to the 200-day simple moving average of $97.43. My semiannual and annual risky levels are up at $111.13 and $118.56, respectively. (For more, see: Are Dollar Stores Really a Bargain?)