I like Costco (COST). I'm not just talking about the smorgasbord of samples in the aisles and the tanker containers of shampoo they sell -- Costco is attractive from a fundamental investment standpoint too. But even though I like it, it's toxic for shareholders right now. Here's why.
This month, Costco triggered a double-top pattern, a reversal setup that marks the end of the uptrend that this stock has enjoyed for all of 2012. As the name implies, a double top occurs when a stock hits two swing highs at around the same price level. The sell signal comes when shares fall through the swing low that separates the two tops, and that happened for Costco last week.Even though Costco has some attractive fundamental attributes, this stock was hardly cheap from a valuation standpoint. Instead, it was a momentum name. That means that it can fall significantly before it falls into "cheap" territory -- all the more reason for fundamentally inclined investors to keep a close eye on the technicals right here. At this point, with the double-top triggered, COST looks positioned to underperform. I wounldn't recommend being a buyer here.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV