Shares of Dollar Tree, Inc. (DLTR), the discount retail store, are set to break out by more than 10% in the coming weeks. The question is which direction the upcoming move will send the stock.
Based on the price chart for Dollar Tree, we have an idea of what to expect, including price targets to keep an eye on. That's because this stock has been stuck in one of my favorite price patterns: an ascending triangle.
These patterns are great because they tell us three things – the key levels to watch, the expected move, and which direction the move may head. It's everything you want to know about a stock.
Here's how it breaks down. The ascending triangle pattern is made with two key levels: a rising support area (in green on the chart below) and a horizontal resistance level (in red). Once one of these levels is broken, then we know where the stock is headed – further in the same direction.
But these two key levels also tell us how big of a move to expect. We simply take the height of the pattern, $16 per share in this case, and add it to the breakout points. That gives us the price targets to the upside and downside for the breakout.
Take a look:
The direction is the tricky part. These triangle patterns tend to be continuation patterns, meaning that the stock continues the same direction in which it was heading before it formed. For Dollar Tree, the price chart is signaling for the stock to continue heading higher, which would send shares hurtling toward the $114 price target. That would be a quick 16% rally from its current price.
But a lot of times, earnings can be the breakout factor – a single event that helps the stock blow past the key resistance or support level on its chart. Dollar Tree reports second quarter earnings near the end of the month.
From the chart above, the stock appears ready to break out of the triangle pattern any day now. But keep in mind that the stock could easily remain stuck within those key levels for the next few weeks, setting up for a big breakout on earnings.
The Bottom Line
Dollar Tree stock is stuck in an ascending triangle pattern that is nearing a breakout point. We have the key levels to watch on the chart. Now it's just a matter of time for the stock to break one of these levels and give us a clear indication of where the price is likely headed.