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We’ve finally seen a bounce in the market, which I called out LIVE to my subscribers on Thursday, you can read more about that here. Tech stocks were so oversold that I knew a face-ripping rally was coming, and we got it! I nailed THESE stocks at the Bottom. I POUNDED THE TABLE and Here’s how my Portfolio looked on Friday:

TRADE LISTINGS

But when tech stocks are in a bear market as they have been, there are other sectors that can outperform. I thought I found a gem that consumers might turn to as inflation hit their hip pocket, but I was proven WRONG, at least in the short term.

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Jeff being interviewed in from of the NYSE

The gem was DollarTree (DLTR).

Dollar Tree, Inc. operates discount variety retail stores. It operates in two segments, Dollar Tree and Family Dollar. The Dollar Tree segment offers merchandise at a fixed price of $ 1.25. It provides consumable merchandise, including candy and food, and health and personal care, as well as everyday consumables, such as household paper and chemicals, and frozen and refrigerated food; a variety of merchandise comprising toys, durable housewares, gifts, stationery, party goods, greeting cards.

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As consumers get hit by rising interest rates, their mortgage repayments increase. Inflation also hits the general public with increased costs for food, gas, and heating/cooling. When times get tough, people are looking to cut back and save wherever they can. This could lead to increased demand for consumer staples, that is, necessary products that people cannot live without, such as household goods and hygiene. 

When these times hit, and they are here with us now, investors seek safety in consumer staples stocks. For this reason, DLTR has held up nicely in this market bloodbath, and I thought the recent pullback provided a great spot for an entry! But I was wrong!

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Technicals

DLTR

DLTR daily chart

DLTR is holding up against the 13/30 hourly moving average and looking to run higher if the bulls can get above the 100 hourly moving average that is acting as a resistance level.

If the 100 hourly moving average can be broken, I’m expecting the bulls to want to run higher towards the 200 hourly moving average next.

That will be my target upside to scale out of a piece of my trade as the bulls run the stock higher.

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The Chart looked great, and the fundamentals looked great! UNTIL THEY DIDN’T

The Trade

trade listing

I decided to structure the DLTR trade as a put spread. With the stock trading at 159, I sold the close to the money 155 puts expiring May 27 and bought the 150 puts. I sold the spread at $1.80, which means as long as DLTR stays above 155 by the close on May 27 I will collect this premium of $1.80. 

However, DLTR has earnings on May 26, so I may look to get out of this trade before then, perhaps if there is a gain of 50% or more. My max risk on this trade is 155-150 =$5 – the 1.80 premium received which equals $3.20. I thought this was a high probability trade and I liked the risk reward!

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WMT chart

But then Walmart (WMT) earnings came out. WMT’s first-quarter earnings missed expectations as rising costs took a bite out of the bottom line. Inflation increased their costs, and the earnings miss sent WMT’s stock tumbling. Then Target (TGT) came out with a similar miss! The entire retail sector took a hit, and DLTR was no exception, as it is getting dragged down with WMT and TGT. I had a risk-defined trade and it didn’t work, so I will take my loss and move on, instead of hoping and praying that it turns around.

DLTR chart

I’ve been on a hot streak, you can read about some of these trades here

QQQ chart

Pounded the table Live on the QQQ bottom

but on DLTR I was completely wrong! That’s a part of the game. I got long a strong stock and then the fundamentals changed, on to the next one!

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Author:
Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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