Stock Of The Day: Will Dollar Tree Head North Or South?

The stock of Dollar Tree ( DLTR ), Inc. is trading lower Friday. This follows yesterday's gain of more than 11%. The move was driven by the company's announcement that it will be selling its Family Dollar division.

The stock could set up for a tradeable move. Traders are watching it closely. This is why our team of trading experts has made it the Stock of the Day.

As you can see on the chart below, the move higher yesterday ended when the stock reached levels around $76.70. This has been resistance since September.

Resistance levels can stay intact for an extended period of time due to remorseful buyers. These are people who purchased shares at the resistance that regretted doing so when the price dropped after.

Some of them decided to hold onto their losing positions, but they also decided that if they can eventually get out at breakeven they would. As a result when Dollar Tree ( DLTR ) rallied back up to their buy price they placed sell orders.

There were so many of these sell orders that it formed resistance around the same levels that had been resistance before.

Sometimes stocks reverse and head lower after they reach resistance. This happens when some of the traders and investors who created the resistance become concerned that other sellers will be willing to sell at lower prices.

These concerned sellers don't want to miss the trade so they decided to reduce the prices they are willing to sell at. Other worried sellers see this and do the same thing. It can result in a snowball effect that forces the price lower.

This is what happened each time Dollar Tree ( DLTR ) reached this resistance since September.

But sometimes when a stock reaches resistance, the buyers eventually overpower the sellers. This breaks the resistance and sets the stage for a move higher. With the sellers out of the way, buyers will be forced to bid premiums to bring them back into the market and this could force the shares into an uptrend.

Traders are watching Dollar Tree ( DLTR ) closely. They don't know which way the stock will move, but they are confident that it will. When it becomes apparent which way it will trend, they will position themselves accordingly.

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