Is there money to be made in the retail sector during this recession? You could look for retailers that focus on less expensive offerings. One may be attracted to Dollar Tree (DLTR) or Family Dollar Stores (FDO). Why these two companies? The answer is in the name, Dollar. The products are inexpensive, which is especially attractive to families that are looking to save money wherever and however possible.

FDO is the second-largest dollar store (trailing only Dollar General), and it targets women that shop for a family earning less than $30,000 a year, a demographic that is growing. FDO sells food, health and beauty aids, household products, apparel, shoes, and linens in its 6,600 stores spread across 45 states. The retailer places these stores in low- and middle-income neighborhoods in both rural and urban areas. A dollar isn't what everything costs, but most of the items are less than $10.

Technically, FDO is performing well considering the current economic environment. The equity is in the midst of a rather steady rise that started in January 2008. The stock has currently pulled back from resistance in the 28 region and is resting on support from its 20-week moving average. It is possible that the stock could muster up the strength to mount an assault on the 28 region again, which could result in a breakout.

As for the downside, it certainly seems that there are limitations. When the stock has tested support, it has found its 50-week moving average ready, willing, and able. In addition, FDO has enjoyed support from the 24 level lately. This level could certainly continue in its supportive role and help keep the shares in check.

FDO Weekly Chart


Unfortunately for DLTR, the technical picture is a stark contrast. The company operates roughly half the amount of stores as the larger FDO, and most of its merchandise does fall below a buck. Roughly 40% of the company's products are imported from China, which could be a reason the stock is struggling.

DLTR has recently plunged below support from its 10-, 20-, and 50-week moving averages. So the poor performance is actually a rather recent development. That said, it appears that the 32.50 level could repeat its role as support for the floundering shares. We could see the stock bounce from here and head higher, but the recent drop was a major setback and could be too much for the stock to overcome. We shall see.

DLTR Weekly Chart


While many large retailers are in severe economic throes currently, the "dollar" stores appear to be outperforming, especially FDO of the two discussed here. The extent and duration of the recession may to some degree influence the continued potential gains of these types of retailers.

Price Headley is the founder and chief analyst of BigTrends.com.