Costco Wholesale Corporation (NASDAQ: COST) seems to be poised for a price surge as per its latest charts. Costco Wholesale Corporation is an American multinational corporation that operates a chain of membership-only big-box retail stores. As of 2020, Costco was the fifth largest retailer in the world.
#1 Pennant Pattern Breakout: As seen from the daily chart, the stock was in an uptrend after which it started consolidating and was in a narrow range. This is a classic pennant pattern, which is a continuation pattern. The pennant pattern is marked in purple color lines in the chart. Whenever a stock breaks out of the pennant pattern, it typically continues its previous trend which is an uptrend in this case.
#2 Price above MAs: The price is currently above both the short-term moving average of 50-day SMA and the longer-term moving average of 200-day SMA. This is a bullish sign.
#3 %K above %D Line: In the daily chart, the %K line of the stochastic has currently crossed above the %D line which is a bullish signal.
#4 Bullish ADX and DI: The ADX indicator shows bullishness in the daily chart, as the +DI line and the ADX line are above the -DI line, and the ADX line has currently moved higher from below both the +DI and -DI lines.
#5 Unbroken Uptrend: As seen from the weekly chart, the stock has been on a steady uptrend, as it has been forming higher highs and higher lows. The uptrend line has been marked in pink color.
#6 Above MAs: In the weekly chart, the stock is trading above the 50-week and 200-week SMA, indicating that the bulls are firmly in control.
#7 Bullish MACD: The weekly chart shows that the MACD line is above the MACD signal line. This indicates possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of COST above the price of around $561.00. Alternatively, the shares of COST can be purchased if it corrects to the price of $545.00.
TP: Our target prices are $575 and $585 in the next 4-6 months.
SL: To limit risk, place stop-loss at $553.50 (for entry near $561) and $530.00 (for entry near $545). Note that the stop-loss is on a closing basis.
Our target potential upside is 3% to 7% in the next 4 to 6 months.
- Entry near $561: For a risk of $7.50, our target rewards are $14.00 and $24.00. This is a 1:2 and 1:3 risk-reward trade.
- Entry near $545: For a risk of $15.00, our target rewards are $30.00 and $40.00. This is a 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the pennant pattern with a high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
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