DG Dollar General up $1.17 as of this writing but....
A few weeks back, Dollar General DG – NYSE gapped up some 11.7% on news that it wanted to buy rival discounter Family Dollar FDO – NYSE for $9 billion. FDO rejected the offer, opting instead to enter into talks with a third rival, Dollar Tree DLTR – NASDAQ.
Dollar General says that it won’t take no for an answer. We say it’s a mess that could take months — if not years — to sort out.
Today, DG announced that it matched earnings estimates but missed on revenue and same-store sales due to a “competitive environment and a cautious consumer.”
So, value-wise we have a company with disappointing revenue and par profits in a very competitive market, that may or may not spend $9 billion trying to acquire bolt-on sales from a hostile dance partner.
And that’s the good news!
DG’s chart looks even worse than its value proposition. Starting from the largest scale and working down, DG’s long-term trend has bent over from a steep climbing angle of attack to a flat range run. The next step here is usually the downside curve of an inverted bowl, but we don’t need to go there just yet to get a good idea of where DG is going next.In the short-term, Western analysis dictates that “all gaps get filled.” And Japanese Candlesticks call this formation an “Abandoned Baby” — a sell signal if ever there was one. Looking to price placement within the long-term trend, we see that DG has visited the top quartile of the trend three times in 30 months, with an average follow-on loss of -21.20%. If DG follows suit again, it would fall to $51.00. But let’s be conservative and posit support at the 50-day (10w) and 200-day (40w) averages at $58.00.
JMHO
