Looking For Family Dollar Chart Support (FDO, DG)

Family Dollar Stores Inc. (NYSE: FDO) managed to beat earnings last night, but the in-line outlook has investors worried that perhaps the great secular trends of the dollar stores and sub-$10 stores may have run into some valuation hurdles.  Family Dollar had reached just over $60 and last night shares fell from $57.96 to slightly under $54.00 this morning.  Eve though Dollar General Corporation (NYSE: DG) is a new Warren Buffett stock, it is being dragged lower as well.

We are looking at the chart here to derive some support because it is getting easy to justify that this sector now trades at a higher multiple than some of the traditional retailers.  That is above-trend historically, but all you have to do is ask Jon Corzine about betting on things “reverting to historic means.”  Maybe things normalize, maybe not.  The fundamental trend for this sub-sector of retail still looks secular if you consider the high unemployment and wages situation in America and if you look at the future demographic trends.

Here is a chart from Stockcharts.com (below)… Look for support around the 200-day moving average ($53.57 today) if shares get closer to $53.50 or so.  Now for the flip-side… If FDO does not hold above that price, pilots would refer to this as dead air between $53 and $51…

The secular growth of dollar stores is not over, but what people may be willing to pay for that growth may have to be tempered at least a bit.  Dollar General stock was added as a Stock for the Next Decade way back when it was at $27.40 and now it is still above $40.50 after a 1.9% drop today in sympathy with Family Dollar.

JON C. OGG