Dollar Tree: A Chart View

The stock has been on a bullish trend but investors should be prepared for some aggressive selling if that trend is bucked.
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By L.A. Little of tatoday.com, author of Trade Like the Little Guy.

If there's one thing that investors are willing to pay up for in this painful market it is discount retailers.

There are multiple names in this sector, but one that should catch your eye is

Dollar Tree

(DLTR) - Get Report

which, as its name suggests, sells most of its merchandise at a buck.

To get a sense for just how well DLTR has performed in this ugly market, take a look at the long-term time frame.

On this chart it is almost as if the 2008 meltdown never happened. Sure it cut DLTR's share price in half but it has tripled since then. The warning sign, if there is one on this long-term view, is that volume continues to decrease as prices rise. That is generally not what you want to see.

As for continued strength though, the trend is confirmed bullish. There's no way anyone should want to short this stock on this time frame nor exit the winning position if they are in it.

On the weekly chart, the story is roughly the same.

The confirmed bullish breakout came in February when the first crisis of the year was hitting our equity markets. From there, it has never stopped to look back, moving from $33 to $45 in a straight line.

Finally, moving to the short-term view, on the daily chart, there appears to be a little wobble in the name.

I say that because the selloff in early July came on heavy volume. In a strong name it usually takes two or three blows to a stock to even make it want to consider turning, so consider this blow No. 1.

As can be seen, it simply grazed DLTR and halted its progress momentarily. DLTR snapped right back achieving new highs within the month. The only blemish on this time frame is that the new highs were achieved on suspect volume, making the trend suspect bullish. Consolidation followed though and now it is attacking the highs once more.

At this juncture, DLTR has to be given the benefit of the doubt. The latest trend designation is confirmed bullish. If it trades back over the swing point high with higher volume, it is probably off to the races again.

Currently it is showing signs that it has every intention of doing so. On the other hand, if it fails once more or trades higher with a suspect trend again, then more aggressively selling may set in. In that case, you might consider taking a portion of your profits and ring the register.

If you are trying to establish a position, you have to do so using the daily chart and buy as the stock retraces into support. Naturally you want to buy as close to the bottom of the support zone as possible and the support zone currently has an almost $2 range.

Until next time, just keep trading the charts.

At the time of publication, Little did not have a position in Dollar Tree. L.A. Little, author, professional trader and money manager, writes daily on

www.tatoday.com

, a free educational site for traders and investors. He has been featured in numerous publications and is the author of

Trade Like The Little Guy

.

His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.