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Why Target and Dollar Tree Is 1 of My Favorite Pairs Trades

by | May 27, 2022


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We’ve been hitting — and cashing in! — on a theme here of late with retailers…

That theme was at the forefront again Thursday with Dollar General and Dollar Tree reporting earnings.

The theme began to take shape when Walmart and Target both missed on earnings — Target’s miss was our trade of the year so far for our Link Trades strategy! 

This is a frequent link trade I like to play with Target and Dollar Tree. And the secret to pairs trading — a la Link Trades — is simply taking two cousin stocks and going long one and short the other when it looks like one is about to start eating the other’s lunch…

And in a recession, you start to see crap rolling downhill.

Think of it as this sort of pecking order… Target is at the high end, followed by Walmart and then the dollar stores at the bottom. 

When the economy starts backsliding with inflation at a four-decade high, people who shopped at Target are feeling the squeeze, so they have to downgrade to Walmart. 

And people shopping at Walmart have to start shopping at the dollar stores — which I expected would be a big boon for them this earnings season… Let’s face it, people are trying to save money. 

Gas prices, rent, food, everything is putting the squeeze on all Americans. 

After seeing Thursday’s Dollar General and Dollar Tree earnings reports, boy did this ever play out. 

Dollar Tree and Dollar General Earnings Reports Send Stocks Soaring

Dollar General Corp. (NYSE: DG) spiked as much as 15.5% Thursday after the company raised its forecast and beat expectations with $2.41 earnings per share versus $2.32 expected.

Dollar Tree Inc. (Nasdaq: DLTR) spiked as much as 22% on strong earnings, even after raising prices from $1 to $1.25. DLTR made $2.37 earnings per share versus $2 expected.

It was no surprise to me when the Dollar General and Dollar Tree earnings reports were so great, and they guided higher for the rest of the year. And I wasn’t surprised at all when Target missed earnings… 

Check out my short video up top and let’s chat more about how to trade pairs. And click here if you want more information on Link Trades!

Are there any topics you’d like to see me cover or questions you’d like answered? Send me an email at jeff@joyofthetrade.com! And be sure to stay ahead of the markets by subscribing to our YouTube channel and our Instagram page for all of the latest!

P.S. Roger’s Can’t-Miss Class This Sunday: The 1 Indicator You Need Right Now

Can’t make it to Senior Strategist Roger Scott’s invaluable training classes during the week? 

Well he’s hosting a more “laid back” session at 10 a.m. EDT on Sunday, May 29, where he’ll show you why this one basic indicator is all we need right now. 

He built a trading strategy with the premise to rip in bull markets, and it completely proved him wrong in the sense that it works just as good — if not better — in crashing markets…  

The conclusion is this is all thanks to one basic indicator most people don’t know about…  

But it’s been alerting the upside and downside potential in the markets — and we’ve seen plenty of both this year! 

That’s because instead of trying to guess the peaks on stocks, he’s getting in when things are “out of whack,” and then closing the position when it normalizes. 

So Be Sure to Sign up for His Sunday Class!

WRITTEN BY<br>Jeff Zananiri

Jeff Zananiri

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