Discount retailer Dollar Tree Inc.  (DLTR) - Get Report faces earnings pre-market on Wednesday with a potential technical downgrade to its weekly chart. Despite this warning, the stock is in bull market territory 20.9% above its Oct. 11 low of $78.78. This gain is masked by the fact that the discount retailer has missed earnings estimates in three of their last four earnings reports.

When Dollar Tree reported earnings on May 30, the stock gapped lower on May 31. When it reported on Aug. 29, the stock gapped lower on Aug. 30. The stock then set its low of $78.78 on Oct. 11 and the stabilization began. The impressive rise as 2019 began reached my first-quarter pivot at $97.18 on Jan. 7 and the stock has essentially stalled since then. The $97.18 pivot was last tested on March 1. This sideways action is the reason that the weekly chart shows downside risk.

Dollar Tree operates as discount variety stores located primarily in suburban areas. Their consumable items include candy, foods, health and beauty products, and frozen and refrigerated food. They also offer household items such as paper and plastic goods. Their variety items include toys, housewares, party supplies and greeting cards. Holiday shoppers may stroll through a Dollar Tree for last-minute gift ideas.

Analysts expect Dollar Tree to earn $1.92 per share when they report earnings before the open on Wednesday, March 6. Some say that earnings for Dollar Tree are being held back because its purchase of Family Dollar in 2015, which has been a difficult transition. The problem has been a drag in same-store sales that caused the downside gaps in May and August of 2018. The stock is not cheap as its P/E ratio is 17.95, according to Macrotrends. It seems that if same-store sales can gain more than 5% year over year the stock can avoid that negative weekly chart.

The Daily Chart for Dollar Tree

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Courtesy of MetaStock Xenith

The daily chart for Dollar Tree clearly shows the price gaps lower on May 31 and Aug. 30. The stock has been stabilizing since the 2018 low of $78.78 set on Oct. 11. The positive reaction to earnings on Nov. 29 could have begun a turnaround story given a positive earnings report on Wednesday. The stock closed Dec. 31 at $90.32, which was an important input to my proprietary analytics. My quarterly pivot is $97.17 with semiannual and annual risky levels at $100.84 and $116.69, respectively. The close of $96.33 on Feb. 28 was an input to my proprietary analytics and that resulted in a monthly value level for March at $93.72. 

The Weekly Chart for Dollar Tree

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Courtesy of MetaStock Xenith

The weekly chart for Dollar Tree is positive but overbought, with the stock above its five-week modified moving average of $95.37. The stock is above its 200-week simple moving average or "reversion to the mean" at $84.37. Note how the stock rode this key average higher between the week of Aug. 31 and the week of Dec. 28. The 12x3x3 weekly slow stochastic reading is projected to end this week at 83.30 slipping from 85.34 on March 1. If the stock ends the week below its five-week MMA at $95.37 with the stochastic reading falling below 80.00, the weekly chart will be downgraded to negative. The positive offset will be a weekly close above my quarterly pivot at $97.18.

Trading Strategy: Buy weakness to my monthly value level at $93.72 then add to positions on weakness to the 200-day SMA at $88.61 and the 200-week SMA at $84.37. Reduce holdings on strength to my semiannual and annual risky levels at $100.84 and $116.69, respectively. My quarterly pivot at $97.18 is a key level in-between the bullish or bearish outcome.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.