Dollar General (DG) closed weak Thursday, near the lows of the day, when the broader market was strong. Normally this clue might go unnoticed, but this could be the start of a bigger pullback or retracement. Let's look at the charts and indicators.
In this daily chart of DG, above, we can see that the stock has performed nicely from the November low. The slope of the 50-day moving average line is positive but prices are now testing that line. The 200-day average line is rising and prices are well above it. DG has had a good price run from November but the volume of trading has not expanded and the On-Balance-Volume (OBV) line has moved sideways more than anything else.
Technical analysts like to see volume expand in the direction of the trend. Prices can go up anyway but rising volume gives us more confidence in the trend's durability. In the lower panel is the 12-day momentum study. Momentum is a leading indicator in that momentum will peak before prices do and that's what we see. Prices of DG made higher highs in June, July and August but the momentum readings made lower highs. This bearish divergence versus price can foreshadow price weakness.
In this weekly chart of DG, above, we can find some further clues to support a bearish position. Yes prices are above the rising 40-week moving average line but moving averages are lagging indicators. Notice that the OBV line on this weekly timeframe has been flat to neutral all year. In the lower panel is the trend following Moving Average Convergence Divergence (MACD) oscillator which is in bullish territory above the zero line, but poised to cross to a liquidate longs or take-profits sell signal.
Strategy: there are enough signals for traders and investors to take profits (we hope) on existing long positions on DG. A retracement back to support around $85 is probably the most likely course of action in the near term