Costco (COST) is attracting a massive selling wave today. The bearish action began with an ugly downside gap following the retailer's disappointing earnings report. The stock has stabilized since the initial flush and is now down 2%, but the news-inspired breakdown has inflicted considerable damage.
At the beginning of last month Costco was entering the final stage of a deep selloff. The decline began as December opened, and by early February, the stock had taken out multiple layers of key support.
Costco reached the $110.00 area after a 15% drop in just over eight weeks. This area, which offered major support during the second half of last year, held again, allowing the stock to recover quickly. Costco rallied back up to its 200-day moving average in the weeks following, as it retraced 50% of the December/January flush.
Costco (COST)
Source: FreeStockCharts.com
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This rebound, especially after the initial pop on Feb. 6, attracted very little bullish interest. Despite a nice recovery, Costco looked somewhat vulnerable heading into earnings.
In the near term, I expect Costco to move lower. The $115.00 to $116.00 area will likely offer heavy resistance prior to a retest of the $110.00 area.
I am not in the stock at this time but believe a very low-risk entry opportunity will develop as shares dip below $111.00. The upper band of a major support zone is here and is marked by the huge upside gap left behind in early February. Just below are the multi-month lows near $110.20 followed by last month's low of $109.50. I will be a buyer following a low-volume test of this area in the coming weeks.
At the time of publication, Morrow had no positions in the stocks mentioned.