How Dollar General Can Break Out to New Highs on Earnings

- Dollar General is hovering below its all-time high, looking to make a move to the upside on earnings. Let's revisit the charts. -

By Bret Kenwell, TheStreet.com

Dollar General  (DG) has enjoyed a strong 2020, up 40% this year, and investors are looking for those gains to continue when the discount retailer reports earnings on Thursday before the open.

While the coronavirus knocked its stock lower, that hardly makes the Goodlettsville, Tenn., company unique. And after that selloff, Dollar General stock has come back stronger than ever. The shares are up 75% from the March lows.

Now it is sitting just a bit below its all-time high at $224.82, as investors look for more upside.

Part of their thesis likely comes from the strong earnings and bullish reaction we saw in Dollar Tree  (DLTR). The Chesapeake, Va., company's shares rocketed higher by 14% on Nov. 24 on better-than-expected earnings. Now bulls are looking for a repeat performance in its peer.

Trading Dollar General Stock

Daily chart of Dollar General stock.

Chart courtesy of Stockcharts.com

If we look back over the past several quarters, Dollar General stock has done a great job trending higher. It has hit a few bumps in the road, but for the most part, the shares continue to find support at the 50-day moving average.

If we zoom in a bit more, we see that the stock has been range-bound between the $205 and $207 on the downside and $225 on the upside.

The bulls are now looking for Dollar General stock to push up through the December high and challenge those highs up near $225. That mark was resistance in both October and November.

If it can push through $225, Dollar General may make a run at the 261.8% extension from the March low to the pre-coronavirus high. That extension comes into play near $235.

On the downside, it might be asking too much for the 20-day and 50-day moving averages to hold as support, considering they are less than 2% away from the current price.

If they do hold as support on a muted reaction, though, that bodes well for the bulls.

On a bearish reaction, Dollar General could revisit the $205-to-$207 range support area. Near that area, the 200-day moving average also comes into play.

From TheStreet.com