Dollar General Corp. (DG) - Get Report will report earnings before the opening bell on Thursday, March 14, stretching to a new all-time intraday high, which is between my annual pivot at $118.52 and this month's risky level at $123.17. Investors should reduce holdings pre-earnings with the stock within this trading range.
My fundamental reason to reduce holdings is based upon an elevated P/E ratio of 21.06 and puny dividend yield of 0.98%, according to Macrotrends.
Technically, the stock has a positive but overbought weekly chart with its 12x3x3 weekly stochastic reading above 90.00 on a scale of 00.00 to 100.00, which in my judgment, makes the stock an "inflating parabolic bubble."
A sad example of a stock becoming an "inflating parabolic bubble" was Boeing Co (BA) - Get Report , which had a reading of 91.40 during the week ending March 1, when the stock closed at $440.62. I mentioned this in my story "Time to Book Profits on Boeing" posted on Feb. 26.
Almost every rural town in the lower 48 states has one of the 15,000 Dollar General discount stores. Analysts expect the discount retailer to report earnings of $1.87 to $1.88 a share when they report earnings before the opening bell on Thursday, March 14. Dollar General is expected to show year-over-year gains in earnings and revenue. Same-store sales will be a key metric, as will guidance, when it comes to store improvements vs. the increased costs of labor and utilities costs.
The Daily Chart for Dollar General
Courtesy of Refinitiv XENITH
Dollar General has been above a "golden cross" since Sept. 6, 2017 when the stock closed at $75.29. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average, indicating that higher prices lie ahead. When trading with this positive, investors should buy weakness to the 200-day SMA, which was last doable between Dec. 20 and Dec. 26 when the average was $102.02. The close of $108.08 on Dec. 31 was input for my proprietary analytics. This resulted in my semiannual value level at $106.54, my quarterly pivot at $111.15 and my annual pivot at $118.52. The stock could have been bought at $106.53 on Jan. 2.
My quarterly pivot was crossed on Jan. 7 and my annual pivot at $118.52 has been a magnet since Feb. 13. The close of $118.46 on Feb. 28 was input into my analytics and resulted in my monthly risky level at $123.17, which is the upper bound of my "sell-strength zone."
The Weekly Chart for Dollar General
Courtesy of Refinitiv XENITH
The weekly chart for Dollar General is positive but overbought, with the stock above its five-week modified moving average of $116.73. The stock is well above its 200-week simple moving average or "reversion to the mean" at $85.39. This average was last tested during the week of Sept. 1, 2017, when the average was $70.75. The 12x3x3 weekly slow stochastic reading is projected to rise to 91.04 this week, up from 89.53 on March 8, above the overbought threshold of 80.00 and above 90.00 as an "inflating parabolic bubble."
Trading Strategist: Buy weakness to my quarterly and semiannual value levels at $111.15 and $106.53, respectively, and reduce holdings with the stock between my annual pivot at $118.52 and my monthly risky level at $123.17.
How to use my value levels and risky levels:
My value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original quarterly, semiannual and annual levels remain in play. The weekly level is changed each week. The monthly level was changed at the end of January and February. My theory is that nine years of closes are enough to assume that all possible bullish or bearish events are factored into the stock's volatility. To capture share price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, and I have been happy with the results for more that 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low vs. the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a stochastic reading rises above 90.00. I call that an "inflating parabolic bubble" and bubbles always pop. I also call a reading below 10.00 as being "too cheap to ignore."
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Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.