Shares of wholesale membership warehouse operator Costco (COST) perked up on my monitors last week as the stock showed relative strength at a technically significant juncture. Now, COST stock looks ripe to break past year-to-date resistance — something that active investors and traders could participate in with clearly defined risk.
Last Wednesday, I discussed that one of my strategies during earnings season is to look for stocks that already reported earnings in the weeks leading up to earnings season, which means they won’t be as much subject to big headline news. Costco fits nicely into this category considering the company reported its latest earnings on May 29, and thus won’t be up to bat again until Oct. 9.
That said, Costco did have some headline news last Thursday, when it announced good same-store sales for the month of June. Costco came in with June sales of almost $10.9 billion, which was up 10%, and same-store sales that rose 6%. COST stock enjoyed the news and jumped right into lateral resistance dating back to early 2014.
COST Stock Charts
Looking at the multiyear chart stretching back to the summer 2010 lows, note that Costco stock has trended up nicely in an orderly channel, but that since the beginning of this year, COST shares have traded near the bottom of the range as they consolidated the the late 2013 selloff. For the longer-term investor, this traces out clearly defined risk, because a drop below the 2010 uptrend would put the stock in at least a medium-term bearish posture.
In the meantime, however, COST still holds support … and that’s not bearish until it is.
On the daily chart, note how closely together COST stock’s medium-term moving averages are currently trading. Of course, this is just the result of the consolidation phase thus far this year, but it increasingly also looks to be supportive for the stock.
Since the February lows, Costco stock has formed a series of higher lows, all of which is pushing the stock against the January resistance line around the $119 area. After a failed rally attempt in early June, COST retraced back toward its 50-, 100- and 200-day simple moving averages (yellow, blue and red lines, respectively). Then last week, the stock began to rally again, closing the week right near the June highs and at the January lateral resistance area.
Also note that last Friday, COST stock rejected its intraday lows and bounced, supporting the Monday-Thursday move.
Active traders and investors could consider buying Costco stock on a close above $118.70, for a move into the mid-$120s. Any meaningful bearish reversal upon a breakout should be heeded as a cautionary call.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.