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How Dollar Tree Could Rally to $110 After Strong Earnings

Dollar Tree is ripping higher on earnings, but can the good times last? Let's look at the charts to see how the stock can make its way to $110.

It’s a good day for the market, but a great day for Dollar Tree  (DLTR) - Get Dollar Tree, Inc. Report. Shares have risen more than 11% after the company reported its fiscal first-quarter results.

Earnings of $1.04 a share easily topped estimates by 20 cents, while revenue grew 8.3% year over year to $6.29 billion, beating expectations by $150 million. Further, company-wide same-store sales grew 7%, beating expectations for 5.1% growth.

It was a solid quarter, giving investors confidence in its business during good times and bad. Investors will simply have to take the results at face value, as management didn't feel comfortable issuing guidance amid these uncertain times.

But given the type of beat we just saw, it’s safe to say that Dollar Tree is doing pretty well. Interestingly, Dollar General  (DG) - Get Dollar General Corporation Report has fallen slightly on the day, despite the company also crushing top- and bottom-line expectations.

While Dollar General management said the last few days have begun to moderate, momentum in its business has been strong so far this quarter. That should bode well for both companies, in my view.

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Trading Dollar Tree Stock

Daily chart of Dollar Tree stock.

Daily chart of Dollar Tree stock.

The post-earnings reaction is decisively bullish, but there’s some hesitation among investors to take shares higher. We must keep in mind though, Dollar Tree stock is up big in the short term.

Just this week, the stock is up 19%, while also up 35% from its lows on May 14th. With that in mind, shares are actually trading pretty well.

I would like to see Dollar Tree stock hold up over the 200-day moving average, currently near $93.50. Below that and the 50% retracement for the one-year range really needs to hold. If it doesn’t, shares risk giving up all of its post-earnings gains. While that wouldn’t destroy the technical setup, it wouldn’t do bulls any favors.

Presently, Dollar Tree stock is pressing into its massive gap-down from November. Ideally, investors will see Dollar Tree fill this gap up toward $110, up about $13 from current levels.

To get there though, we’ll need to see the stock reclaim the 61.8% retracement near $97. Above that and clearing $100 will be the next task. Let’s keep an eye on Dollar Tree going forward, particularly if it clears the latter of these two levels.