Dollar General Corporation (DG) beat earnings per share (EPS) estimates when the discount retailer reported results on May 28. The stock traded higher and set its all-time intraday high of $194.84 on June 1.

Almost every rural town has a Dollar General, a retail store where customers can buy almost all types of consumer goods. The stock could have been bought between March 12 and March 31 between its semiannual and annual pivots at $147.46 and $144.22, respectively.

The stock closed Friday, June 5, at $185.66, up 19% year to date and in bull market territory at 48.5% above its March 16 low of $125.00. The stock is 4.7% below its June 1 all-time high of $194.84.

Dollar General is not cheap, as its P/E ratio is 23.74 with a dividend yield of just 0.78%, according to Macrotrends. To increase store traffic, the retailer is expanding its focus to both consumable and discretionary goods. 

The daily chart for Dollar General

Daily chart showing the share price performance of Dollar General Corporation (DG)
Refinitiv XENITH

Dollar General stock has been above golden cross since Sept. 6, 2017. This buy signal occurred when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow. This buy signal followed the stock all the way to its June 1, 2020, high of $194.84.

The stock could have been bought at its annual pivot at $144.22 between March 12 and March 27. This occurred when the stock dipped below its 200-day simple moving average.

Dollar General moved back above its 50-day and 200-day simple moving averages on April 2, and it moved above its quarterly pivot at $170.31 on April 13. The stock is now above its monthly value level at $171.44 but below this week's risky level at $193.27.

The weekly chart for Dollar General

Weekly chart showing the share price performance of Dollar General Corporation (DG)
Refinitiv XENITH

The weekly chart for Dollar General is positive but overbought, with the stock above its five-week modified moving average of $179.42. The stock is well above its 200-week simple moving average of $109.00, which is also the reversion to the mean. This average was last tested during the week of Sept. 1, 2017, when the average was $70.75.

The 12 x 3 x 3 weekly slow stochastic reading is projected to hit 89.01 this week, unchanged from June 5. If this reading rises above 90.00, the stock will be in an inflating parabolic bubble formation.

Trading strategy: Buy Dollar General stock on weakness to its monthly and quarterly pivots at $171.44 and $170.31, respectively, and reduce holdings on strength to its weekly risky level at $193.27.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.

The second quarter 2020 level was established based upon the March 31 close, and the monthly level for June was established based upon the May 29 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and the lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.