Seeing This on Costco's Chart Tells Me to Be Cautious With the Stock
Here's why investors should stay alert for a potential change in direction.
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On May 29 I recommended a cautious stance on Costco Wholesale COST. Looking at the price action since late May, I still want to be cautious about the next direction for COST.
In the daily bar chart of COST, below, I can see that the shares have climbed higher the past 12 months. Prices trade above the rising 50-day moving average line and above the rising 200-day moving average line. Prices are extended above the 200-day line.
The On-Balance-Volume (OBV) line rolled over in June at a slightly higher high. The 12-day price momentum study in the lower panel shows us a lower high from May to June giving us a bearish divergence when compared to the price action. Bearish divergences can at times foreshadow price corrections.
In the weekly Japanese candlestick chart of COST, below, I see some clues that give me pause. I can see a shooting star pattern in early June. A shooting star is a potential top reversal pattern as it shows a rejection of the highs.
The trading volume does not show us a clear expanding pattern but the OBV line does show us a rising pattern since early 2023. The 12-week price momentum study shows us another bearish divergence with lower momentum readings from January to June even though prices made higher highs.
In this daily Point and Figure chart of COST, below, I can see that the shares reached and exceeded a price target in the $812 area.
In this weekly Point and Figure chart of COST, below, I can see a picture like the daily chart. Prices have reached and exceeded a price target in the $812 area.
Bottom-line strategy: Timing market moves based on divergences is difficult at best. Divergences are a heads up that something is different and you should stay alert for a potential change in direction.
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