Dollar General Stock Flashing ‘Buy’ Signal Ahead of Earnings

DG

Daily Stock Chart DG

Schaeffer's

What's more, implied volatilities on the equity are at low levels, with the equity's Schaeffer's Volatility Index (SVI) of 36%, now registering in the 25th percentile of its annual range. If the SVI holds steady around its two-year average over the next couple of weeks, White's modeling shows that an at-the-money DG call option could potentially return 215% on another expected bounce from support at the 100-day trendline. In other words, prospective call buyers could more than triple their money on a 9.3% gain in the shares.

It’s also worth noting that Dollar General steps into the earnings confessional for its third quarter report before-the-open on Thursday, Dec. 5. Looking at the discount retailer’s earnings history, the security has closed higher the day after reporting in four of the past eight quarters, including a 10.7% post-earnings pop back in August. During this time frame, DG has moved an average of 6.3% regardless of direction. This time around, the options market is pricing in a much larger post-earnings swing of 9.3%.

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Discount retailer Dollar General (DG) took a breather in November after a torrid climb up the charts earlier in the year. However, despite turning in five weekly losses in the past six weeks, DG has brushed up to a trendline of historically bullish implications, if history is any guide.

Specifically, Dollar General stock recently slid all the way down to its 100-day moving average. There have been four similar pullbacks after a lengthy stretch above the trendline during the past three years. After which, the shares averaged a one-month gain of 9.3%, and were higher 75% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White. At last check, DG was trading at $153.84, so a bounce of similar magnitude would push the stock past its Oct. 23 record high of $166.98.

What's more, implied volatilities on the equity are at low levels, with the equity's Schaeffer's Volatility Index (SVI) of 36%, now registering in the 25th percentile of its annual range. If the SVI holds steady around its two-year average over the next couple of weeks, White's modeling shows that an at-the-money DG call option could potentially return 215% on another expected bounce from support at the 100-day trendline. In other words, prospective call buyers could more than triple their money on a 9.3% gain in the shares.

It’s also worth noting that Dollar General steps into the earnings confessional for its third quarter report before-the-open on Thursday, Dec. 5. Looking at the discount retailer’s earnings history, the security has closed higher the day after reporting in four of the past eight quarters, including a 10.7% post-earnings pop back in August. During this time frame, DG has moved an average of 6.3% regardless of direction. This time around, the options market is pricing in a much larger post-earnings swing of 9.3%.

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