Costco Could Be a Buying Opportunity as Key Support Holds

Costco is under pressure Friday despite better-than-expected earnings. Here's why the stock may be a buying opportunity as key support holds steady.
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Costco Wholesale  (COST) - Get Report was down about 2% Friday, with the decline coming despite better-than-expected earnings.

It also comes alongside a notably better-than-expected jobs report for February and as the S&P 500 moved lower by 2%. It’s a lot of information to dig through, but the early movement in Costco shares has the Real Money team selecting it as its Stock of the Day.

Earnings of $2.10 a share beat expectations by 4 cents, while revenue of $39.07 billion grew more than 10% year over year and easily topped expectations by more than $800 million.

Excluding fuel and gas, comp-store sales jumped 7.9%, better than the 5.7% growth that analysts were looking for. Further, online sales jumped 28%.

Really, this was a pretty solid quarter, despite the reaction not looking quite as rosy. Let’s look at the charts to get a better idea of the situation.

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Trading Costco Stock

Daily chart of Costco stock. 

Daily chart of Costco stock. 

There’s a lot going on in the daily chart above. However, mapping a few quick levels helps make sense of the jargon.

The $305 level has been a notable mark for several quarters now. It was resistance throughout the third and fourth quarter, before bulls were finally able to trigger a breakout in January.

That breakout took Costco stock to $235, where it has now topped out twice. This cements $235 as resistance and makes it the upside target should support hold. As for that support, it now comes into play at the prior breakout level, near $305. Further, both the 50-day and 100-day moving averages are nearby, at $305.50 and $301.50, respectively.

For bulls, it’s quite convenient to have so much potential support in one area. After a solid earnings result, Costco stock should find decent support between $301.50 and $305. If it doesn’t, that means buyers are not in control and lower prices are possible.

Should support give way and Costco drops below $293, three downside targets show up. That being the 200-day moving average near $287.50, its year-to-date closing low and prior resistance near $280 to $281, and finally, the 2020 low near $271.

But until then, the simpler the better. Above $301.50, and preferably $305.50, and Costco stock is surprisingly OK on the long side. Although risk-averse traders may prefer to avoid Costco, and all others, for the time being. And who can blame them?