Dollar Tree: The Hidden Risk Wall Street Is Missing

Dollar Tree (NASDAQ:DLTR) is currently in Phase 9 of its 18-phase Adhishthana cycle on the monthly charts. Typically, Phase 9 is characterized by powerful breakouts and the onset of a significant rally. But for Dollar Tree, the opposite occurred. Instead of breaking upward from its Cakra formation, the stock broke down, triggering what the Adhishthana framework defines as the Move of Pralay. This breakdown signals long stretches of underperformance and structural risk for the stock.

What Went Wrong for Dollar Tree? 

In the Adhishthana cycle, a stock typically builds what's called a Cakra between Phases 4 and 8, a channel with an arc at the base that sets up the bullish structure. The breakout usually comes in Phase 9, which then begins the Himalayan Formation, a long-term move that includes the ascent, the peak, and eventually the decline.

Read our commentary on Credicorp, which recently surged after creating its Cakra to the upside for a better understanding. 

Dollar Tree, however, failed to follow this path. The stock did create its Cakra from Phase 4 to 8 in line with the principles, but when it entered Phase 9, it broke down through the Cakra, triggering the Move of Pralay.

As outlined in Adhishthana: The Principles That Govern Wealth, Time & Tragedy:

"When the underlying breaks the Cakra on the flip side, consolidation typically extends into the Guna Triads. The move that follows is highly significant, and selling pressure can be extremely strong. This is called the Move of Pralaya."

Since the breakdown, Dollar Tree has fallen as much as 51%, validating the framework's warning. Dollar Tree's failure has skewed risk firmly to the downside. 

Some may point to the rebound since November 2024 as a sign of recovery. But such rallies are unlikely to be sustainable. On the weekly chart, Dollar Tree is only in Phase 4, meaning short-term strength should not be mistaken for a structural turnaround. Phase 4 is largely a no-action phase. 

More importantly, the Guna Triads, critical for determining the stock's long-term potential, do not arrive until nearly a decade from now! That suggests this underperformance could persist well into the future.

Investor Outlook

Dollar Tree's Cakra took over 5,300 days to form, making its breakdown all the more significant. In Adhishthana terms, such a failure often points to deeper fundamental fragility within the stock.

With the Guna Triads far off, downside risk dominates the outlook. While some large institutions, such as JP Morgan, may maintain an ‘Outperform’ rating on the stock, our analysis suggests a divergent outlook, with any upward movements likely to face resistance and lack sustained momentum. We maintain Dollar Tree at underperform for the long term. Existing investors should weigh the hidden risks carefully, while new investors may want to avoid exposure until the structure improves. 

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.