by Serge Berger | January 10, 2014 8:33 am
Several retailers announced their sales numbers for December yesterday, with a good number of them disappointing, leading to weakness in their stocks. Among those retailers that announced December sales is wholesale membership warehouse operator Costco (COST), which reported good results that led to a marginally and technically significant rally on the chart of Costco stock.
Specifically, COST reported that its net sales grew 6% to $11.53 billion in December. More specifically, Costco saw sales rise to $11.53 billion in the five-week period ended Jan. 5, up from $10.87 a year ago. Costco’s comparable sales rose 3%, with sales in the U.S. up 5% and international sales rising 1%.
Although Costco has a tendency to act well during the holiday season anyway, the good sales numbers nonetheless seemed to impress traders and investors, leading them to rally the stock to the tune of 3.91%, closing at $118.51, on a big surge in volume.
On the chart spanning back to 2011, note that Costco’s best friend has been (and continues to be) its rising 200-day simple moving average (red line). Since the early 2009 capitulation lows, Costco stock has trended higher in a more orderly fashion than many stocks, and in the process has touched its 200-day SMA just three times.
Staying the trend notoriously is the most rewarding type of trading strategy — just ask any macro hedge fund managers! — and staying the trend in Costco stock has rewarded trend followers plenty in recent years. In early December, however, COST again bumped up against the upper end of the longer-term up-trending channel, leading to a correction and a retest of the 200-day SMA.
On the daily chart, Costco’s retest of the 200-day SMA is better seen. Note that Wednesday’s selloff into the moving average line Thursday was quickly reversed back up, bringing Costco stock back to a resistance area around the $119-$120 area, which has been in place off and on since August. Note how during intraday trading Thursday, Costco stock retested Wednesday’s lows and then successfully rallied higher, closing at a new five-day high in a technically significant bounce.
From here, the time frame in which traders and investors operate once again becomes very important as it pertains to Costco stock.
For the quicker traders, a follow-through bounce after Thursday’s rally may already be considered.
However, for the more conservative trader, myself including, a move past the $119-$120 resistance area — and preferably even back above $120.70, which is where the stock’s 50-day SMA currently resides — offers up a higher-probability long-side entry to play the stock toward the $128 area.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.
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