Costco Wholesale Corporation (COST) posted profits that were lower than expected on May 28. The stock is now trading above a golden cross, but it failed to maintain its monthly pivot at $308.02 on June 2. The large box bulk store works as a wholesale warehouse for members exclusively, where they may purchase consumer products and fuel. COVID-19-related costs have resulted in lost revenue, since the number of consumers permitted in shops has been limited owing to social distance.
When customers are squeezed, the stock has a dismal track record. This was due to slowing membership fees. The stock is not inexpensive. According to Macrotrends, Costco’s P/E multiple is 36.81, with a dividend yield of only 0.91%.
The stock finished Monday, June 1, at $308.29, up 4.9% year to date, and 13.6% above its low of $271.28 on February 26. The stock is also 5.2% lower than its all-time intraday high of $325.26, which was reached on February 21.
The daily chart for Costco
Costco’s daily chart reveals that the stock started the previous 52 weeks above the golden cross. On April 3, 2019, the 50-day simple moving average crossed above the 200-day simple moving average, indicating that higher prices were on the way. This corresponded to the stock’s all-time intraday high of $325.26 on February 21.
The stock opened 2020 at $270.48, which was over its semiannual value threshold. After reaching a high of $325.26 on February 21, the stock plummeted to $271.28 on February 28. This is a trading range that I believe will hold.
Note how choppy the stock has traded since then. The annual pivot at $287.88 was a magnet between March 12 and April 3. The low was just above its semiannual value level at $270.48. The monthly pivot for June at $308.02 failed to hold on June 2.
The trading range is between its semiannual value level at $270.48 and its quarterly risky level at $324.07. In between are the annual pivot at $287.88 and its monthly pivot at $308.02.
The weekly chart for Costco
The weekly chart for Costco will be downgraded to negative given a close on Friday below its five-week modified moving average at $304.27. The stock is well above its 200-week simple moving average, or reversion to the mean, at $215.91.
The weekly slow stochastic reading of 12 x 3 x 3 is expected to conclude this week at 60.17, up from 59.20 on May 29. If the economy continues to deteriorate in the next days, the rating for this week will fall below 59.20.
Trading strategy: Buy Costco stock when it falls below its annual and semiannual value levels of $287.88 and $270.48, respectively, and sell when it rises over its quarterly hazardous level of $324.07. The monthly pivot at $308.02 should continue to attract attention.
How to apply my risky and value levels: My proprietary analyses used the stock’s closing price on December 31, 2019. The semiannual and annual levels are still visible on the graphs. In these time periods, the last nine closures are used in each calculation.
The second quarter 2020 level was determined using the March 31 close, while the monthly level for June was determined using the May 29 close. Each week, new weekly levels are determined, and each quarter, new quarterly levels are calculated. Semiannual levels are adjusted in the middle of the year, while annual levels remain in effect all year.
My hypothesis is that nine years of volatility between closing is sufficient to infer that the stock has factored in all probable bullish and negative occurrences. Investors should purchase shares on weakness to a value level and sell shares on strength to a risky level to capture share price volatility. A pivot is a value or danger level that has been breached within its time period. Pivots operate as magnets that are likely to be tried again before their time horizon ends.
How to utilize 12 x 3 x 3 weekly slow stochastic readings: I chose 12 x 3 x 3 weekly slow stochastic readings after backtesting numerous techniques of measuring share-price momentum with the goal of finding the combination that produced the fewest false signals. I did this after the 1987 stock market meltdown, and I’ve been pleased with the results for more than 30 years.
The stochastic reading for the stock encompasses the previous 12 weeks of highs, lows, and closes. A raw assessment of the disparities between the highest high and lowest low vs the closing is available. These levels are tweaked to allow both quick and slow reading, and I discovered that slow reading worked best for me.
The stochastic value ranges from 00.00 to 100.00, with readings over 80.00 indicating overbought and readings below 20.00 indicating oversold. A result over 90.00 indicates the creation of a “inflating parabolic bubble,” which is often followed by a 10% to 20% decrease over the following three to five months. A score of less than 10.00 is regarded “too inexpensive to ignore,” and is usually followed by 10% to 20% increases over the following three to five months.
The author has no holdings in any of the stocks mentioned and has no intentions to start new positions in the next 72 hours.
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