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Trading Dollar Tree and Dollar General After Earnings Beats

Dollar Tree and Dollar General both beat earnings and revenue estimates. Both are also retreating. Here's how to trade the stocks now.

Shares of Dollar Tree  (DLTR) - Get Dollar Tree, Inc. Report and Dollar General  (DG) - Get Dollar General Corporation Report were reacting differently Thursday after both companies reported their second-quarter results.

However, they also have a few things in common. For starters, Dollar General beat on earnings and revenue, growing sales 24.4% year over year. Dollar Tree also beat on top- and bottom-line expectations as revenue grew 9.4%.

Both stocks are also down on the day as a result. However, the main difference here is the depth of the decline.

Dollar General stock is down about 1.5% after initially hitting new all-time highs on the day before fading lower. Dollar Tree shares are down about 7% from the highs while the stock still has not taken out its 52-week high from 2019.

Trading Dollar General

Daily chart of Dollar General stock.

Daily chart of Dollar General stock.

On a closing basis, Dollar General saw a 19.3% peak-to-trough decline in March, outperforming most of its retail peers and the S&P 500. After a sharp rebound, shares have slowly but surely continued to grind higher.

Just below current prices is a plethora of potential support. Specifically, I’m talking about the 20-day and 50-day moving averages, the 161.8% extension and uptrend support (blue line).

A close below the 50-day moving average and 161.8% extension will sap momentum from this name and turn bulls more cautious. However, I like a dip into this area as a buying opportunity.

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On a rotation over Thursday’s high, look for a test of the two-times range extension at $209.

Trading Dollar Tree

Daily chart of Dollar Tree stock.

Daily chart of Dollar Tree stock.

Unfortunately, the charts aren’t as rosy for Dollar Tree stock. While shares have been trading much better since the March lows and hit new 2020 highs ahead of earnings, there’s still some damage here.

Specifically, the stock still hasn’t filled its November gap up near $110. Further, the post-earnings dip is discouraging for bulls.

However there is a plus side, which is that Dollar Tree stock is dipping right down into the 50-day moving average and uptrend support (blue line). Like Dollar General, a break of these levels will create a cautionary situation for bulls.

If it holds as support though, it’s a potential low-risk trading setup for longs.

On the upside, shares need to reclaim the 20-day moving average and $100 breakout level. Above puts the pre-earnings high in play near $105, followed by a potential gap-fill toward $110.

On the downside, a close below the 50-day moving average puts the 50% retracement in play near $90, along with the 200-day moving average.