Editor’s note: Serge Berger, the head trader and investment strategist for The Steady Trader, will be providing the Trade of the Day until Sam Collins returns on June 27.
Dollar Tree (NASDAQ: DLTR) – This discount retailer rose 200% off its 2009 bottom as the difficult economic environment led many people to try to cut down on household expenses. As such, Dollar Tree and its competitors, 99 Cents Only Stores (NYSE: NDN), Dollar General Corp. (NYSE: DG) and Family Dollar Stores (NYSE: FDO) saw increased traffic, and each had good runs over the past couple of years. DLTR also began carrying refrigerators and freezers in many of its stores recently, which further helped revenue.
On the weekly chart, note the stock’s sharp 200% rise since February 2009. The only real correction came in January, and after consolidating, the stock then made another big run into mid-May.
Since peaking out around $64.50 in mid-May, the stock has been consolidating again, but has also formed a nice bullish pennant pattern. Yesterday, the stock made a solid run higher to the tune of almost 2.5%, and is now just a few dimes short of the May highs; however, volume could have been much better.
On the other hand, stochastics, among other oscillators, are not yet overbought and could allow DLTR more room to the upside.
The trade I see setting up here is as follows: Open DLTR long at $64.20 or better with a stop at $62.10 and profit target at $66.50. The risk/reward could be better, but it should be a quick trade. Given the broader market headwinds, I prefer to keep the stop tight and the target quickly reachable.
