Chart of the Day – DG and TIF on Talking Numbers

by Enis September 5, 2012 11:21 am • Commentary

Here’s a preview of what I’ll be discussing on Talking Numbers today between 3:20 and 3:30 pm EST on CNBC:


We’ve spoken about our distaste for TIF on several occasions.  Dan laid out an interesting technical case back in May, and here is an excerpt that I find particularly prescient:


One more chart stuck out to me, the 20 year.  There have been 2 rapid $40 dollar rallies in TIF in the past 20 years, the first led by the growth of the U.S. consumer in 1999, and the second led by the growth of the Chinese consumer in 2010-2011.  After the strong rally in 1999, the stock stalled out as U.S. growth slowed after the tech bubble, and I envision a similar scenario developing today in TIF, as Chinese growth slows after their fixed investment bubble over the next few years.

2o yr TIF chart from Bloomberg


Chinese weakness continues to be a factor for the broader market, though TIF has shown recent strength following its earnings report (which was weak, but perhaps not as weak as expected).  I own the Nov 55 / 50 put spread for $1.21, and I view the recent strength as transitory.

Here is a 5 year chart of TIF, showing the significance of the $60 – $65 region:



The $60-$65 area has turned from previous support to current resistance.  TIF is back below $60 today, and I view a retest of the $50 support level as likely within the next few months.

Contrast the situation in TIF with DG, Dollar General, a company that caters to the very low-end of the consumer spectrum (it’s even in the name).  DG went public in Nov 2009, and has been in a strong uptrend ever since.  The stock reported earnings today, and is trading up around 1%.  The chart is the opposite of TIF, a case of previous resistance now acting as current support.  That level is around $48.50, as shown on the current chart:



Even looking at the performance of comparable companies, DG and other low-cost retailers (like WMT and COST) indicate much better technical outlooks than TIF’s comparable companies (like COH or RL).  The fundamentals seem to be skewing that way as well.