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LIN. REGTREND


Dollar Tree On Short Watchlist

02/13/11 09:45:55 AM
by Alan R. Northam

The Dollar Tree is in a strong intermediate-term downtrend but could be setting itself up for a short-term corrective bounce. A shorting opportunity exists once the short-term downtrend resumes.

Security:   DLTR
Position:   N/A

Figure 1 shows the long-term picture of Dollar Tree (DLTR). The bottom window of Figure 1 shows the daily trading bars along with the 200-day linear regression trendline and its upper and lower channel lines. Note that the linear regression trendline shows that the long-term trend of DLTR remains in an upward direction.

FIGURE 1: DLTR, DAILY. This chart shows the daily price chart of the Dollar Tree in the bottom window along with the 200-day linear regression trendline and its upper and lower channel lines, the linear regression slope indicator in the top window, the R-squared indicator in the second window, and the relative standard error indicator in the third.
Graphic provided by: MetaStock.
 
The linear regression slope indicator in the top window is currently above its zero-line but is rolling over into a downward direction. This indicates that price is decelerating. Note that price deceleration is the first step in a reversal of trend.

The R-squared indicator is shown in the second window from the top. This indicator is well above its critical level, indicating a very strong upward trend in progress. However, the R-squared indicator is also rolling over, indicating that the strong uptrend is starting to weaken. A weakening of the trend is the second step toward a reversal of the trend.

The third window from the top shows the relative standard error indicator. This indicator is currently at its highest possible level, indicating extreme high volatility. High volatility is the next step toward a reversal of trend.

The long-term statistical analysis shows that the long-term trend remains in a strong uptrend. However, this analysis also shows that this strong trend is starting to weaken and all indications point toward a possible reversal in the long-term trend from up to down.

Figure 2 shows DLTR over the intermediate term. The bottom window of Figure 2 shows the daily price bars along with the 50-day linear regression trendline along with its upper and lower channel lines. Note that the linear regression trendline is showing that the intermediate-term trend is in the downward direction.

FIGURE 2: DLTR, DAILY. This chart shows the daily price chart of the Dollar Tree in the bottom window along with the 50-day linear regression trendline and its upper and lower channel lines, the linear regression slope indicator in the top window, the R-squared indicator in the second window, and the relative standard error indicator in the third.
Graphic provided by: MetaStock.
 
The top window again shows the 50-day linear regression slope indicator. Note that this indicator is below its zero-line and continues to point downward. This signals price acceleration in the downward direction. Price acceleration is a sign of a healthy downtrend.

The next lower window is that of the R-squared indicator. This indicator is a measure of the strength of trend. Note that this indicator is above its critical level and continues to point upward. This is a signal that the strength of the intermediate-term downtrend continues to get stronger. This is a sign of a healthy downtrend.

The third window down shows the relative standard error indicator over the intermediate-term trend. This indicator is in the process of moving lower and is close to moving below its 0.5 level. Once this indicator moves below 0.5, it will signal below average volatility. Low volatility is a confirming sign of a strong trend. Once volatility starts to increase, that is when we should be concerned of a possible reversal in trend. Right now, the relative standard error indicator is suggesting that the intermediate-term downtrend will continue.

The intermediate-term statistical analysis shows that the Dollar Tree is in a strong intermediate-term downtrend and shows no sign of reversing its direction.

Figure 3 shows the short-term trend of DLTR. On the price chart, in the bottom window I have shown the 10-day linear regression trendline along with its upper and lower channel lines. The linear regression trendline continues to point downward, indicating that the short-term trend is currently in the downward direction.

FIGURE 3: DLTR, DAILY. This chart shows the daily price chart of the Dollar Tree in the bottom window along with the 10-day linear regression trendline and its upper and lower channel lines, the linear regression slope indicator in the top window, the R-squared indicator in the second window, and the relative standard error indicator in the third.
Graphic provided by: MetaStock.
 
The top window shows the linear regression slope indicator. Note that this indicator has now moved above its signal line (a nine-day simple moving average), indicating price deceleration over the short term, an indication of a developing short-term correction.

The next lower window shows the R-squared indicator. This indicator is currently above its critical level but is moving in a downward direction. This is an indication of a weakening short-term downtrend.

The third window down from the top shows the relative standard error indicator. This indicator is above 0.2, indicating the presence of some volatility, but as long as it remains below 0.5, volatility will remain below average. A move above 0.5 will signal that the possible short-term upward correction is continuing to develop.

The short-term statistical analysis shows the possibility of a developing short-term upward correction.


In conclusion, this statistical analysis shows that over the long term the uptrend of the Dollar Tree is in a weakening process. Over the intermediate term, this analysis shows the Dollar Tree in a strengthening downtrend. However, over the short term, the Dollar Tree could be starting to correct for some of its losses. While this is a shorting candidate, I will wait until I see signs that the short-term trend is ready to move lower before shorting this stock. Until then, it goes on the watchlist.



Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.

Garland, Tx
Website: www.tradersclassroom.com
E-mail address: inquiry@tradersclassroom.com

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