Confident Consumers May Leave Dollar Days Behind
If middle class consumers flocked to discount retailers from Big Lots (NYSE: BIG) to Walmart (NYSE: WMT) during the Great Recession, does an improving economy mean the beginning of the end for the dollar stores?
From a short-term trading perspective, the most interesting dollar store is Family Dollar Stores Inc. (NYSE: FDO). Shares of FDO have pulled back for five days in a row, the last two in technically oversold territory, just above the 200-day moving average.
The last time FDO was as oversold as it is heading into trading on Friday was six weeks ago in early January. Then, a short, sharp drop ended a pullback that took Family Dollar Stores lower for four out of five days and into technically oversold territory. After seven days of treading water, the stock began a three-day climb to new, short-term highs and a gain of more than 4% from that initial oversold close.
Elsewhere in the sector, stocks like Dollar Tree (NASDAQ: DLTR) and Dollar General (NYSE: DG) have begun to trend sideways after rallying into overbought territory near new, long-term highs. Trading near oversold levels after selling off for two days in a row heading into Friday’s session were shares of Pricesmart (NASDAQ: PSMT). Here, breakeven trading on Thursday has limited the stock’s short-term edge to just over half a percent.
Note that Dollar Tree is scheduled to report quarterly earnings next week on Wednesday.
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David Penn is Editor in Chief of TradingMarkets.com