With close to 600 stores, Costco Wholesale Corp. (NASDAQ: COST) is one of the largest membership wholesale retailers. The recent buyout announcement of BJ Wholesale Club (NYSE: BJ) led me to have a closer look at some of its competitors, and I promptly found a nice long setup in COST.

On the weekly chart, we see a nice upward sloping channel that has its roots in August 2010. Both the upper and lower ends of the channel were tested in May and June, and the stock now seems to have room to the upside again within the channel.

Since the end of April, Costco has traced out a bull flag pattern, which it broke out of ever so slightly late last week. Furthermore, the move from the recent lows in March to the recent highs in mid-May held the 50% retracement (horizontal red measurements) in early June, from which the stock then attacked the breakout of the bull flag.

Technical analysis 101 for a bull flag breakout would in this case lead us to a final upside target near $93 with yesterday’s closing levels of around $81.30.

I would point out two things, however. First, the major U.S. equity indices are very overbought in the near term, and I would expect stocks to pull back some here in coming days. Second, my style dictates me to take at least partial profits ahead of levels that are apparent to the broader investment public.

The trade I see setting up here is to go long COST at $81.30 or better with a stop at $78.90 and a profit target at $86.

Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.