Dollar Tree (DLTR) Long-Side Try

21/06/2011 Uncategorized  No comments

dollar tree close up

It should not come to many people’s surprise that the stock price of Dollar Tree Inc (DLTR) rose 200% off the 2009 bottom.  The difficult economic environment led many people to cut down on household expenses and as such the dollar stores – where most items are priced around 1 U.S. dollar – saw increased traffic.  DLTR also added refrigerators and freezers to many of its stores recently, which further led to higher revenue.  To be sure, its competitors like 99 Cents Only Stores (NDN), Dollar General Corp (DG), Family Dollar Stores (FDO), also had good runs over the past couple of years. 

On the weekly chart here note the sharp 200% rise since February 2009.  The only real correction came in January and after consolidating for a while the stock then made another big run into mid May.   

 

Since peaking out around $64.50 in mid May the stock has been consolidating again but has also formed a nice bullish pennant pattern.  Yesterday the stock made a solid run higher to the tune of almost 2.50% and is now just a few dimes short of the May highs.  Volume could however have been much better.

 

On the other hand stochastics among other oscillators are not yet overbought and could allow DLTR more room to the upside.

 

The trade I see setting up here quite simply is this:

Open long at $64.20 or better, Stop at $62.10, and profit target at $66.50.  The risk/reward could be better, but it should be a quick trade and given the broader market headwinds I prefer to keep the stop tight and the target quickly reachable.

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