Earlier today, Dollar General missed estimates on both earnings and revenue and lowered its full-year guidance. Investors showed no mercy and the stock cratered from $157.66 to under $130 so far. The company attributes its disappointing results to sluggish traffic, inflationary pressures, a less-than-ideal inventory position and shrink. The last one means that customers have been stealing from DG’s stores.
More than three years ago, in early-July, 2020, we wrote that “Dollar General stock bulls are looking for trouble.” It wasn’t a very timely call as the stock kept rising for a while, but it wasn’t a bad one either, given that it is down 32% since. The S&P 500, in contrast, is up 43.6% over the same time period. So it is fair to say that Elliott Wave analysis correctly warned us to avoid this one.
The incredible thing is that the charts started looking bearish, while business at Dollar General was still booming. Sales rose 8.3% in 2020 and then jumped by 21.6% in 2021. With both the company’s fundamentals and share price now in freefall, it is easy to be a pessimist. Is a negative view warranted, though? Or are the bears simply extrapolating the recent past into the future, just like the bulls did two years ago? Let’s consult the Elliott Wave charts again.
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The weekly chart of Dollar General reveals that the stock has drawn a complete Elliott Wave cycle. It consists of a five-wave impulse, marked 1-2-3-4-5, and a simple A-B-C zigzag correction. The five sub-waves of 1, 3 and C are also visible and labeled i-ii-iii-iv-v. The motive part of this cycle saw the stock surge nearly twelve-fold between the company’s 2009 IPO and mid-April, 2022. The corrective part has already erased more than half of those gains.
The good news is that once a correction is over, the preceding trend resumes. As always, the exact price level of the bullish reversal is unknown, but chances are it is near. The stock has already fallen past the 50% retracement and seems on its way to the 61.8% Fibonacci support. If this count is correct, a pivot to the upside in the $120 area should not come as a surprise.
Not that long ago, Dollar General stock headed south while the company was at its best. Can it head north now, while the business is at its worst? Elliott Wave analysis says ‘Yes’.
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