Dollar General Corp. (DG) is indicated to open sharply lower this Tuesday morning. Despite a good third quarter investors and traders appear to be focused on what the recent hurricane and other severe weather may do to fourth-quarter earnings.
Let's check out the charts as of Monday' night's close and see what clues they reveal.
In the daily bar chart of DG, below, we can see an uptrend over the past 12 months. Prices are above the rising 200-day moving average line. Assuming that prices open around $104-$105 Tuesday morning, it would put DG below the flat 50-day moving average line and testing the November lows. The 200-day line intersects down around $101.
The daily On-Balance-Volume (OBV) line has been flat since August. In October and November when DG made new highs the OBV line failed to make its own new high and created a bearish divergence.
In the lower panel of this first chart is the trend-following Moving Average Convergence Divergence (MACD) oscillator, which slipped below the zero line recently for an outright sell signal. Interesting that the OBV line diverged and the MACD oscillator gave a sell before the recent company news announcement.
In the weekly bar chart of DG, below, we can see that prices are still above the rising 40-week moving average line. The weekly OBV line is pointed up but it, like the daily line, has not made new highs to confirm the price gains in recent months.
In the bottom panel is the MACD oscillator which is crossing to the downside for a weekly take profits sell signal.
In this Point and Figure chart of DG, below, we still have an uptrend and a projected upside target. A decline to $103.41 on this chart will be bearish.
Bottom-line strategy: A close below $103 on DG will weaken the chart and a close below the 200-day moving average line will also be bearish. Traders and investors who may be long DG should liquidate those positions or tighten sell stops to minimize losses.
