Dollar Tree Sits on Critical Support - Will It Hold?

Dollar Tree sits on a critical level of support. If it fails, a move lower could occur. Here's how to trade the stock.
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As the S&P 500 pushes higher Wednesday, Dollar Tree  (DLTR) - Get Report shares were struggling to turn positive.

That comes after the company’s mixed fourth-quarter results, where earnings of $1.79 a share beat estimates by 4 cents. However, revenue of $6.32 billion grew just 1.8% year over year and missed expectations by $70 million. Comparabe-store sales growth also missed the mark.

However, the real disappointment came from management’s guidance. The company expects fiscal first-quarter sales in the range of $5.89 billion to $5.99 billion, missing estimates of $6.02 billion. Earnings per share are forecast to be in a range of $1 to $1.09, missing consensus expectations for $1.20.

This was enough to briefly send Dollar Tree stock below $80, as shares hit a new 52-week low. However, the stock has since found its footing, as it tries to push back to flat on the day.

The rebound was enough to catch the Real Money team’s attention, as it named Dollar its Stock of the Day. Let’s have a look at the charts.

Trading Dollar Tree Stock

Weekly chart of Dollar Tree stock.

Weekly chart of Dollar Tree stock.

Dollar Tree reported earnings just after Nordstrom  (JWN) - Get Report, Kohl’s  (KSS) - Get Report and Target  (TGT) - Get Report did this week. So far, not many retailers - including these four - are enjoying the earnings season all that much.

Dollar Tree’s run has been marred by several violent flushes lower. The latest came three weeks ago, as shares burst below the 200-week moving average. However, it was the November decline that really set the tone. This decline sent shares tumbling below long-term uptrend support (blue line), a mark that went on to become resistance, (as depicted on the chart with the purple arrow).

Now, bulls find themselves in a precarious situation as Dollar Tree stock teeters on multi-year range support.

Shares have been stuck between $117.50 on the upside and $80 on the downside. Sitting near the latter now, I would consider this a must-hold level. Should it break, it puts a move down to the low- to mid-$70s in play.

However, if bulls make a stand and hold support, it’s possible to get a rally up to the $87.50 to $90 area. That’s if DLTR can clear the $85 mark, which served as the 2020 low prior to last week’s flush. However, this $87.50 to $90 area contains both the 10-week and 200-week moving averages. At least on the first attempt, I’d expect this area to act as resistance should Dollar Tree advance that far. 

For any of these marks to be possible though, bulls must first hold $80.