Costco Wholesale Corporation (NASDAQ:COST): Watch Out for That Cliff!

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Costco Wholesale Corporation (NASDAQ:COST) shares are lower by 12% year-to-date, including the punishment doled out to retail stocks in general amid a cruddy earnings slate. Costco itself is set to report its latest batch of earnings Wednesday after the bell … just as COST stock is sitting at a big technical inflection point.

Beat the BellMaybe it goes without saying, but investors and traders alike should watch Costco stock closely this week as it reacts to the earnings report.

As I made my rounds with investors and analysts on Monday regarding the earnings expectations and outlook for Costco, it was status quo. Perma-bulls on stocks think discount retailers like COST will save the retail earnings season. The bears are mostly scared to say anything after getting their clocks cleaned following the February lows.

Notably, one investor I spoke with who never saw a stock he didn’t like came with the “lower gas prices is good for the consumer” theme to support his bullish call on COST stock. I had to gently remind him that a.) oil has rallied about 90% off the February lows and b.) that COST stock already lost nearly 20% from its 2015 highs down to last week’s lows.

So, let’s look at what the charts may be able to tell us in a more objective way.

Costco (COST) Stock Charts

First, on the multiyear weekly chart, we see that COST stock has been holding above its blue 100-week simple moving average ever since breaking above it in 2009. Costco now looks dangerously close to attempting a weekly close below this line. Will Wednesday’s earnings report be the savior once more?

Also see that the simple trendline (red dotted line) has been holding as support, but that one too is looking more and more likely to be snapped on a weekly closing basis.

Costco COST stock weekly
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On the daily chart, we see that COST stock has had a band of support since late 2015 around the $135-$140 area (blue box). Also note that the stock’s 50-, 100- and 200-day moving averages are currently all bunched together and slowly rolling over as I marked with the red box. The options market is currently pricing in about a 3.5% expected move in the stock in either direction following the earnings results.

Costco COST stock daily chart
Click to Enlarge

While COST stock may be somewhat oversold in the immediate term, anything can happen after earnings, and I would be more focused on what the stock does on a weekly closing basis.

If COST stock manages to close this or next week below the aforementioned lines on the weekly chart above, then it will have confirmed a better intermediate term top that could see it move back into the $120s over time.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/costco-wholesale-corporation-nasdaqcost-watch-out-for-that-cliff/.

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