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Costco Could Be a Buy for a Pre-Earnings Rally

All of the other best-in-breed retailers climbed ahead of or after earnings. Why shouldn't Costco Wholesale? Here's a look at the stock and the charts.

Costco Wholesale  (COST) - Get Costco Wholesale Corporation Report traded roughly flat on Wednesday, despite the strong rally in the the S&P 500.

Costco investors were trying to navigate a plethora of retail earnings.

In the last two sessions, Target  (TGT) - Get Target Corporation Report, Home Depot  (HD) - Get Home Depot, Inc. Report, Lowe’s  (LOW) - Get Lowe's Companies, Inc. Report and Walmart  (WMT) - Get Walmart Inc. Report have reported earnings.

Either in after-hours trading or in regular-hours trading, three of the four names hit new all-time highs within 24 hours of reporting the results. Target, which reported strong results Wednesday morning, is the only stock that hasn’t hit new highs. It came within 1.5% of doing so, though.

So what does this have to do with Costco? Like the names above, it’s considered a best-in-class retailer and one that’s doing well amid the coronavirus outbreak. Currently down more than $20 per share or 6.5% from its highs, Costco stock could have upside.

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Trading Costco

Daily chart of Costco stock.

Daily chart of Costco stock.

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While shares are struggling for direction on Wednesday — which is admittedly a bit concerning with the broad-market strength — it’s still holding up well above its key moving average.

Costco stock is above the 20-day, 50-day and 200-day moving averages, as it continues to hold the 20-day as support.

Should shares lose the 20-day moving average as support, look for $300 to buoy Costco. There it will find a key support level throughout 2020, as well as the 50-day moving average.

Just below that is the 200-day moving average near $297 and uptrend support (blue line).

Should Costco do what the other four retailers above did — that is, trade within 1.5% of its all-time high within 24 hours of earnings — it will put shares at or above $320.40 by May 28th, the day it reports earnings.

To get there, shares will have to hurdle the $312.50 area, which has been a layer of resistance for Costco stock this year. It’s worth pointing out that the 78.6% retracement comes into play at $312.99.

Interestingly enough, shares have struggled with $320. So a move up to this level ahead of or after earnings would not be surprising.

Based on its peers, I like Costco stock for a pre-earnings play, as long as shares remain above $296.