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Trade of the Day: Costco Wholesale Corporation (COST) Stock

Serge Berger

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Retailer stocks as a group have already been under great pressure year to date but on Monday, in anticipation of Amazon.com, Inc. (NASDAQ:AMZN) holding its Prime Day, a good many of them took another beating. While I believe the trend to online retailing will certainly continue and ultimately push more traditional retailers out of business, some stocks, such as wholesaler Costco Wholesale Corporation (NASDAQ:COST) are now reaching some critical long-term support levels on the charts where bounces or even bullish reversals could occur.

Trade of the Day: Costco Wholesale Corporation (COST) Stock

Source: Mike Mozart via Flickr (Modified)

The trend is clear, Amazon is literally eating the lunch of many retailers and continues to foray into new frontiers, as exemplified with last month’s acquisition of Whole Foods Market, Inc. (NASDAQ:WFM).

This has also shown in its stock performance — AMZN stock is up nearly 33% for the year and thus dramatically diverged from the rest of the pack.

Currently, analysts are busy contemplating whether Amazon could soon also become a threat for wholesalers such as Costco or whether there is more of a moat around those companies.

In my eye there is little Amazon cannot do, including getting into the wholesale market either organically or through an acquisition. However, would that necessarily mean the end for Costco, as some market participants are already looking to price into the stock? I’m not smart enough to answer that question and quite frankly, few if anyone really can foretell, which is why we turn to the chart for some guidance for the here and now.

COST Stock Charts

Click to Enlarge

On the multiyear weekly chart we see that despite the recent 15% haircut for COST stock off the June highs, the multiyear up-trend since the end of the 2008/2009 financial crisis remains well intact.

In fact, through this lens, the recent slide in the stock was merely a mean-reversion move back to the lower end of the multiyear up-trending channel, albeit a sharp one. Just because a stock reaches the lower end of trend however does not make it a blind buy.

Click to Enlarge

On the daily chart, we see that after some choppy behavior in April and May, COST stock finally released to the downside in mid-June and has been on a one-way street lower ever since. As a result, the MACD momentum oscillator at the bottom of the chart on Monday reached its most oversold ever for this stock.

Ever is a long time, and thus combined with having reached the lower end of trend on the bigger picture above may be nearing a better buy spot.

As usual however, not until a bullish reversal rears its head do I see the odds line up better for a trade. However if and when COST stock can give us a next solid buying day then nibbling on Costco stock for a starter position, or for option sellers to sell out-of-the-money put spreads makes more sense. At that point, whether the stock will just bounce toward the low-to-mid $160s or if it sets in motion a new longer lasting up-swing back to the upper end of the bigger picture trend remains to be seen.

For now, let’s respect that the bigger-picture bull trend for COST stock remains intact and that it is not broken until it is broken.

Check out Anthony Mirhaydari’s Daily Market Outlook for July 11.

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