Conclusion, Investment Implications, Strategy

Costco Wholesale Corporation (COST) is amid favorable conditions to resume its March major uptrend from minor Tactical support near $378.55, which is currently being tested.  A sustained rise above this area would target an additional 10% rise to $430.00 per share.  This is an Asbury Momentum trade idea.

Analysis and Rationale

Costco Wholesale Corporation (COST), together with its subsidiaries, engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. It offers branded and private-label products in a range of merchandise categories. The company provides dry and packaged foods, and groceries; snack foods, candies, alcoholic and nonalcoholic beverages, and cleaning supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio products; meat, bakery, and deli products, as well as produce; and apparel and small appliances. It also operates pharmacies, optical dispensing centers, food courts, and hearing-aid centers, as well as 615 gas stations; and offers business delivery, travel, same-day grocery, and various other services online in various countries. As of October 07, 2020, the company operated 796 warehouses, including 552 in the United States and Puerto Rico, 102 in Canada, 39 in Mexico, 29 in the United Kingdom, 27 in Japan, 16 in South Korea, 13 in Taiwan, 12 in Australia, 3 in Spain, 1 in Iceland, 1 in France, and 1 in China. It also operates e-commerce websites in the United States, Canada, the United Kingdom, Mexico, South Korea, Taiwan, Japan, and Australia. The company was formerly known as Costco Companies, Inc. and changed its name to Costco Wholesale Corporation in August 1999. Costco Wholesale Corporation was founded in 1976 and is based in Issaquah, Washington.

The rightmost green highlights in the upper panel of Chart 1 below show that COST is currently rebounding from a Jun 16th test of its 50-day moving average, a widely-watched minor trend proxy current situated at $378.55.  Meanwhile, the blue daily relative performance line between COST and the SPDR S&P 500 ETF (SPY) in the lower panel is rebounding from a test of its 63-day moving average, which is our Strategic time period.  Together they suggest a new Tactical buying opportunity within COST’s March 2021 major uptrend as defined by its 200-day MA.

Chart 1

A sustained rise above the $378.55 area would target an additional 10% rise to $430.00 per share. 

Table 1 below shows that considering the aforementioned upside target and a protective stop placed below the $377.12 area, a long entry price of $390.05 would provide a 1:3.1 risk/reward ratio (risking $1.00 to make $3.10) with an initial risk of 3.3%.

Table 1


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