Shares of Costco Wholesale Corporation (NASDAQ:COST), much like the broader U.S. stock market, have traded fairly flat thus far in January. However, the price action in COST stock and the technical patterns in play across multiple time frames suggest that the path of least resistance is higher.
What I love right now is that the stock is providing well-defined support and resistance lines, which we can use to focus our trades and manage our risk.
Earnings season has kicked into high gear this week. Since I’m no earnings gambler, I’m instead focusing on stocks that have either already reported fourth-quarter earnings or don’t have a report scheduled within the next two to three weeks.
Costco isn’t due to report earnings until early March, so it falls into the latter camp.
Before looking at the absolute charts of COST stock, note that while retail stocks — as represented by the SPDR S&P Retail (ETF) (NYSEARCA:XRT) — have come under pressure in recent weeks, shares of Costco have done the opposite.
Although from a multi-year perspective the ratio of COST stock versus the XRT ETF remains in a range, we should respect the recent relative and absolute strength.
COST Stock Charts
On the multiyear weekly chart, we see that Costco stock has been a trend follower’s dream. Price action since 2011 has taken place in a well-defined up-trending channel (purple-dotted parallels). The lower end of this trend is supported by the blue 100-week simple moving average.
From this angle, the trend should remain on the side of the bulls until a sustainable break below the lower end of the channel is broken.
On the daily chart, we see that following the election results in November 2016, COST stock bounced off horizontal support, which also coincided with the lower end of the aforementioned channel on the multiyear chart.
While Costco is in a defined bull trend, over the past 13 months or so, the price action has largely been confined in a range between $170 on the upside and $140 on the downside.
On Dec. 8 following its latest earnings report, Costco gapped higher and back above the middle of this sideways range. This ultimately gave COST stock a push toward the upper fifth of the range.
The consolidation pattern of the past few weeks is now beginning to resolve higher. Barring any sudden bearish reversal, the path of least resistance looks to be back to the very upper end of the range, around the $170 area as a next upside target. If and once it gets there, COST likely will need a better push to break past technical resistance and into the $170-$180 area.
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