News of Amazon.com, Inc.‘s (NASDAQ:AMZN) purchase of Whole Foods Market (NASDAQ:WFM) has captured the fascination of traders everywhere, but also the ire of anyone holding onto Costco Wholesale Corporation (NASDAQ:COST). COST stock took a clobbering on Friday — one that has traders licking their lips at potential trade setups.
The implications of a juggernaut like AMZN entering the grocery marketplace are myriad. Fear and trepidation seized any and all companies now vulnerable to Amazon’s market share stealing ways. Chief among the losers were Kroger Co (NYSE:KR), Wal-Mart Stores Inc (NYSE:WMT), Target Corporation (NYSE:TGT) and, of course, Costco.
But it’s COST stock that I find the most interesting here.
Before Friday’s surprise plunge, Costco shares were flirting with record highs. Indeed, the membership-only warehouse club known for its bulk discounts had risen 17.6% year-to-date, taking full advantage of continued optimism surrounding the aging bull market.
Now, a dark cloud hangs over the stock.
COST actually suffered a double-whammy on Friday. In addition to the Amazon acquisition news, the company received a downgrade from Goldman Sachs. As you might assume, the latter was a direct result of the former. Citing elevated competition from Amazon, Goldman modified its rating on the company from buy to neutral.
What makes COST stock standout from the other grocers/retailers mentioned earlier (KR, WMT, TGT) was its inability to recover from the initial freefall on Friday morning. The stock limped into the close while the rest of the group rallied back strong.
To provide context for Friday’s drubbing, let’s survey both the weekly and daily charts.
The downturn was serious enough to shatter the first potential support level on the weekly chart ($169). For the short-term trend to remain pointing higher, this zone should have held. It’s failure signals the trend is now in jeopardy.
Watch the $164 level moving forward. The next pivot low and the 50-week moving average rest in this area so it should be considered a potential support level.
On the momentum front, it’s worth noting COST did flash a warning sign that was confirmed with Friday’s drop. This cautionary signal came in the form of a divergence in the RSI indicator.
The daily chart reveals the potential support area of $164 in greater detail.