$1 Ideas for Dollar General

• Posted by Greg Harmon
• on March 21st, 2012

Dollar General, $DG, reports earnings Thursday morning before the open. The rest of the world will be paying attention to the news out of Fedex, $FDX and lululemon athletica, $LULU, so this will likely get swept under the rug. But this stock is worth taking a look at whether you are a day trader, swing trader, or position trader of stocks or options. Here is why.

Dollar General, $DG

The chart above shows that long move higher off of the low in August. After consolidating throughout February it moved higher in early March and has been consolidating again the last 5 days into the earnings report. This bull flag has a target on a Measured Move higher to 48.50. A good reaction to earnings in a market that is biased higher could help it get there in a couple of weeks or less. Perfect for a swing trader, or an options trader who wants to spend $1 on a April 45/48 Call Spread. But this stock also has historically reacted with big moves following the earnings report. Over the last 6 reports it has moved an average of 4.4% or $2.00 at today’s closing price. That is quite a move for a stock with historical volatility of less than 20%. Perfect for a day trader, at least for Thursday. And what happens if the reaction is negative, and it moves down $2 to 42.75. The short term double top with long upper shadows touching 45.75 suggests it could. This is where that full month of consolidation took place. Looks like a good opportunity to take a shot at it long against the base. The Relative Strength Index (RSI) has been in bullish territory since August with upward sloping Simple Moving Averages (SMA) and a positive Moving Average Convergence Divergence (MACD) indicator. It may pullback but will take a monster move lower to change that momentum. Using a $1 trailing stop keeps your risk down to $1 on Dollar General.

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