Dollar Tree Stock Soars Into Blue Skies: What's Next?

Dollar Tree, Inc DLTR shot up over 15% higher at one point on Monday to reach a new all-time high of $131.70. The discount retail store received a number of upgrades including R5 Capital analyst Scott Mushkin slapping a whopping $171 price target on the stock. Investment firm Mantle Ridge also said it had taken a 5.7% stake in the company valued at $1.8 billion.

The stock has been trading in an upwards trajectory since Sept. 29 but has lagged the general markets over the course of 2021. As of Friday, Dollar Tree had traded only about 15% higher since opening the year on Jan. 4 compared to the S&P 500, which has soared about 26% higher over the same period.

See Also: Expert Ratings For Dollar Tree

The Dollar Tree Chart: Dollar Tree began trading in an uptrend on the daily chart after printing a bullish double bottom pattern at the $84.41 level on Sept. 24 and Sept. 27. The stock has since created a fairly consistent series of higher highs and higher lows and on Monday printed the next higher high above the Nov. 4 high of $116.46.

On Monday, Dollar Tree’s volume indicates there is a high level of trader and investor interest in the stock. By midafternoon about 13 million shares of Dollar Tree had exchanged hands compared to the average 10-day volume of just 4.25 million. Monday’s volume is the highest bullish volume the stock has seen since Sept. 29.

There are two gaps on Dollar Tree’s chart that may make bulls cautious going forward. The first gap falls between $115.05 and $121.41 and the second within the $87.51 to $92.96 range. Gaps on charts fill about 90% of the time so it’s likely Dollar Tree will trade down to fill both gaps in the future, although it could be an extended period of time before that happens.

Eventually, Dollar Tree will have to fall lower or consolidate sideways for a period of time to drop its relative strength index (RSI). On Monday, Dollar Tree’s RSI was registering in at about 83%, which puts the stock square into overbought territory, which can be a sell signal for technical traders. When Dollar Tree’s RSI reached the same level on Nov. 3 the stock fell 11% the following day.

Dollar Tree is trading above the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending above the 21-day, both of which are bullish indicators. The stock is also trading about 30% above the 50-day simple moving average, which indicates longer-term sentiment is bullish. Dollar Tree is extended from all three moving averages, which indicates consolidation may take place soon.

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• Bulls want to see some form of consolidation and then for big bullish volume to drive Dollar Tree up to make a new all-time high. If the stock reaches blue-skies, there is no further resistance in the form of price history above.
• Bears want to see big bearish volume come in and push Dollar Tree back down below its previous all-time high of $120.37. Below the level, there is further support at $116.46 and $112.68.

Photo: M.O. Stevens/Wikimedia.