I love trading high-flying momentum stocks, which is why today’s watchlist idea might come as a surprise. After all, Dollar Tree (DLTR) is down more than 47% this year, and let’s be honest, it’s not exactly in a sexy sector.

But as a trader, I try my best to put my personal bias to the side, and focus more on what the charts are showing me, which is why I believe now might be the time we see a reversal in DLTR.

The S.A.M. AI Scanner is lighting up with squeezes flashing across multiple timeframes (10, 15, and 30-minute charts

But what really has my attention is the formation of a double-bottom pattern. This classic setup suggests that DLTR may have found its floor.

And with the stock bouncing off this level, the path to $80+ to fill its previous earnings gap looks increasingly plausible.

Technical Framework:

Squeeze Dynamics

The S.A.M. AI Scanner has identified something particularly interesting – compression forming simultaneously across the 10, 15, and 30-minute charts.

This kind of multi-timeframe alignment often precedes significant price movement, especially in oversold conditions.

When these shorter timeframe squeezes stack up like this, it frequently signals that a larger move is brewing beneath the surface.

The compression we’re seeing suggests institutional accumulation may be happening quietly.

Double Bottom Pattern

The technical structure here is particularly compelling when we look at how it’s developed:

• First low established in September at $60.49
• Second test in November creating near-perfect double bottom
• Price successfully holding and climbing off these levels
• Currently trading around $75, showing strong recovery momentum

What makes this pattern so powerful is how it’s playing out.

After a devastating 70% decline, the stock needed to prove it could find support. That’s exactly what we’re seeing with this double bottom formation.

When a stock retests its lows and bounces rather than breaking down further, it often signals that sellers have exhausted themselves and smart money is starting to accumulate positions.

The fact that DLTR has now climbed to $75 adds significant credibility to this bottoming pattern.

This is exactly the type of technical structure I look for in reversal plays:

• Clear support level established and retested
• Strong bounce off the lows
• Base building above support
• Multiple timeframe squeezes suggesting energy building for next move

With the stock now showing it can hold these levels and build a base, the path to filling that earnings gap near $81.80 becomes increasingly possible.

Earnings Gap Fill

The gap left from September’s earnings drop presents a clear target for this potential rally.

Filling this gap would not only confirm the reversal but also set a new resistance level at around $80, offering a strategic exit point for swing traders.

Year-End Dynamics & Tax-Loss Considerations

With DLTR down 47% in 2024, we’re looking at a classic tax-loss selling candidate, and here’s why that matters for January:

• Institutional investors have been selling DLTR to harvest tax losses
• This artificial selling pressure has nothing to do with fundamentals
• Once calendar flips to 2025, this selling completely disappears
• Many funds typically buy back these positions after 30-day wash sale rule

Here’s where it gets interesting: This pattern often creates a powerful bullish setup for January and Q1.

Why? Think about the mechanics:

1. December: Funds sell for tax purposes, creating additional downward pressure
2. January: Tax-loss selling stops, removing artificial selling pressure
3. Late January: Many institutions re-enter positions after wash sale period
4. Q1: New money flows often target previous year’s underperformers

This creates a “coiled spring” effect – once the tax-loss selling pressure lifts, these oversold stocks often see significant bounces.

With DLTR showing technical strength just as we approach this seasonal shift, we could see accelerated upside momentum into mid-January and beyond.

Business Overview

While DLTR has faced its challenges—particularly within its Family Dollar segment—the company’s core Dollar Tree stores continue to perform. Strategic adjustments and a focus on operational efficiencies are key as the retailer navigates a tough economic landscape.

Key Catalysts

• Recovery in core Dollar Tree operations
• Strategic closures and optimizations in the Family Dollar segment
• Rebounding consumer spending in discount retail

Your Action Plan

The convergence of technical signals and market dynamics around DLTR makes this an especially timely opportunity.

Here’s how I’m playing it:

Current Position:

• I am long at-the-money-calls expiring in mid-January.

Trade Thesis:

• Double bottom formation confirmed at $60.49 level
• Base building complete with stock now at $75
• Multiple timeframe squeezes suggesting imminent move
• Gap fill target at $81+ provides clear upside objective
• Tax-loss selling pressure ends today, setting up January bounce potential

Next Steps:

• Planning to add on 30-minute momentum shift confirmation
• Risk defined with clear technical levels to trade against
• Multiple profit targets aligned with gap fill zones

If you’re in For Profit Surge Trader, you’ll get real-time alerts as I manage this position and add to it based on our technical triggers.

This setup combines everything we look for: clear technical structure, definable risk, and multiple catalysts including seasonal factors that could drive price action.

Want to see exactly how I manage positions like this?

Click here to join me in Profit Surge Trader where I break down every entry, exit, and management decision in real-time.