Discount Stores Are Dropping Like Prices, Next!

Last year they were the darlings of the market support by both fundamentals and technicals. But one by one the low cost discount stores are falling from their lofty perches. First it was Costco, $COST , Target, $TGT and BigLots, $BIG. Last week Family Dollar Stores, $FDO joined the group falling after reporting earnings. Who will be next? There are two that may be lining up now.

Dollar General, $DG

The Dollar General, $DG, chart above shows the rise over 2011 and the recent plateauing in an expanding wedge. Over the past week it is starting to move lower in the wedge. The Relative Strength Index (RSI) is heading south and near the mid line while the Moving Average Convergence Divergence (MACD) indicator has crossed negative. Both support a move lower. Notice also that the Bollinger bands are squeezing, often a sign that a big move is coming, as the shorter term 50 day Simple Moving Average (SMA) is starting to rolling down. A break under 40 is likely to accelerate things to the downside with at least a test of support at 38.

Dollar Tree, $DLTR

Dollar Tree, $DLTR, is not quite as obvious. It has a RSI that is bullish and holding over the mid line, and rising SMA’s. But is also showing a couple of potential signs of a move the other way. It is extended near the end of the Measured Move with the MACD turned negative and the Bollinger bands squeezed. Not a short here but worth watching given the movement of the rest of the sector. Set an alert for a move under the 50 SMA.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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