Dollar General (DG) - Get Report is the discount retailer found everywhere across the country. It is one of the retailers doing well because it caters to the thrifty. But what about the stock? It is in bull market territory but suffered what technicians call a "key reversal" on July 27 when shares traded to its all-time high.
A daily "key reversal" day occurs when a stock sets an all-time intraday high, then closes below the prior day's low on the same day. Weakness since setting the all-time high has the weekly chart negative, which indicates risk that the reaction to earnings will more likely be a disappointment.
Dollar General is expected to earn $1.09 a share for the quarter ended in July when it reports Thursday. The daily chart below will show that the stock gapped higher following earnings reports reported on May 26 and March 10.
Here's the daily chart for Dollar General.
Courtesy of MetaStock Xenith
Dollar General closed Tuesday at $91.49, up 27.3% year to date, and in bull market territory up 53.1% from its 52-week low of $59.75 set on Nov. 13, 2015. The stock is 5.6% below its all-time high of $96.88 set on July 27.
The stock has been above a "golden cross" since March 11. A "golden cross" occurs when the 50-day simple moving average trends above its 200-day simple moving average and indicates that higher prices lie ahead. The stock closed at $85.01 on March 11 after a huge price gap on March 10. This price gap was cause by a positive reaction to earnings reported before the opening bell on that day.
Another price gap higher on May 26 was another positive reaction to earnings. This provided the momentum for strength to the all-time intraday high of $96.88 on July 27. The close that day at $95.07 was below the July 26 low of $96.04 defining a "key reversal".
The stock is below its 50-day simple moving average of $92.88 and is above its 200-day simple moving average of $80.83.
Here's the weekly chart for Dollar General.
Courtesy of MetaStock Xenith
The weekly chart shows a red line through the price bars. which is the key weekly moving average (a 5-week modified moving average). The green line is the 200-week simple moving average considered the "reversion to the mean." The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicates overbought and readings below 20.00 indicates oversold. A negative weekly chart shows the stock below its key weekly moving average with weekly momentum declining below 80.00 in a trend towards 20.00.
The weekly chart for Dollar General is negative with the stock below its key weekly moving average of $92.11, but is well above its 200-week simple moving average of $65.06. The weekly momentum reading is projected to fall to 69.59 this week down from 80.20 on August 19 moving below the overbought threshold of 80.00.
Investors looking to buy Dollar General consider doing so on weakness to $83.50, which is a key level on technical charts until the end of September. An annual pivot at $91.80 should be a magnet until the end of 2016.
Investors looking to reduce holdings should consider selling strength to $94.18 and $98.83, which are key levels on technical chart until the end of this week and until the end of September, respectively.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.