You Ask, We Analyze: Is Dollar Tree's Stock Set For A Blue Sky Run?

On Wednesday morning, Benzinga asked its Benzinga Pro community which tickers they’d like analyzed. From the replies Benzinga selected these two tickers for technical analysis.

Pro user Up_And_Away wanted to see a technical analysis on Dollar Tree, Inc DLTR.

Dollar Tree was trading about 1% higher in the premarket after soaring almost 10% on Tuesday. On Wednesday morning, Dollar Tree received a number of analyst upgrades with Barclays raising its price target to $140, BMO Capital raising its price target to $155, Deutsche Bank to $171 and Telsey Advisory Group to $175.

The raise in price targets comes following the discount store printing a third-quarter sales beat. Dollar Tree also announced it will be raising its base price for most of its products to $1.25 beginning in 2022 due to inflation concerns and in order to bring back discontinued items and offer more selection.

In the four trading days prior to Tuesday’s rally, Dollar Tree had been trading in a sideways consolidation phase Benzinga called out on Nov. 15. The consolidation was needed following a 5% gap up and an additional 8.48% intraday run on that date.

See Also: Watch for Continued Gains in Shares of Dollar Tree

The Dollar Tree Chart: Dollar Tree will eventually need to trade sideways and create another higher low to consolidate Tuesday’s bull run but the stock is trading in a strong uptrend. The most previous higher high was printed on Monday at $135.59 and the most recent higher low on Tuesday at $132.29. Dollar Tree will need to remain trading above Tuesday’s low-of-day to remain in an uptrend.

Consolidation is also likely to occur soon because of how extended the stocks relative strength index (RSI) has become. Dollar Tree’s RSI is measuring in at about 85%, which puts the stock well into overbought territory and can be a sell signal for technical traders.

There lower gaps remain on Dollar Tree’s chart that bulls should be aware of. 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.

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 37% 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 although bulls can use the daily 8-day EMA as a guide if already in a position.

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• Bulls want to see some sideways consolidation, at least on lower timeframes and then for big bullish volume to come in to push the stock up above Tuesday’s all-time high of $149.24. Bulls can then watch for follow-through on the move to see whether Dollar Tree is set for a blue-sky run.
• Bears want to see big bearish volume enter to drop Dollar Tree down below the eight-day EMA and the $132.29 level to negate the uptrend. Below the area there is support at $129.44 and $120.37.

Photo: M.O. Stevens/Wikimedia.