Dollar Tree, Inc. (NASDAQ:DLTR) and Dollar General Corp. (NYSE:DG) shares may be breaking out. This action suggests a continued move higher.
This is why our technical analysis team has picked them as our Stocks of the Day.
Stocks trend higher due to an imbalance in supply and demand. If there are more shares to be bought than for sale, buyers need to outbid each other. They know sellers will go to whoever wants to pay the highest price. This action forces the shares into an uptrend.
At resistance levels, there are as many or possibly even more shares for sale than there are to be bought. This is why rallies end or pause when they reach these levels.
Sometimes, stocks roll over and trend lower after they reach resistance. This happens when some traders and investors who created the resistance with their sell orders become anxious.
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They know buyers will go to whoever sells them shares at the lowest price. These anxious sellers don't want to miss out on the trade, so they reduce the prices they are willing to sell their shares.
Other anxious sellers see this and do the same thing. This can force the stock into a downtrend.
But sometimes, when a stock reaches a resistance level, buyers overpower the sellers and push the price higher. When this happens, traders say that it is a breakout.
As you can see on the charts of Dollar General and Dollar Tree, they may be breaking out.
Breakouts tend to be bullish. They show that the investors and traders who created the resistance with their sell orders have finished or canceled their orders.
With this large amount of supply taken out of the market, the stage could be set for a move higher. Those who wish to buy will be forced to outbid each other again to draw the sellers back in.
This could result in another bidding war that forces the price even higher. It may be about to happen with both of these stocks.
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Photos: Dollar Tree via Shutterstock, Dollar General courtesy Dollar General
