Buy the Costco Earnings Dip? Let's Look at the Chart

Costco is dipping despite better-than-expected earnings. Here's what we're looking for when it comes to support.
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Costco Wholesale  (COST) - Get Report reported better-than-expected fiscal fourth-quarter earnings and revenue. Despite that, shares are down about 3% in early Friday trading.

Retail is made up of the haves and the have-nots. Fortunately for investors, Costco is in the former group, which consists of other retailers like Target  (TGT) - Get Report and Walmart  (WMT) - Get Report.

It may not feel that way, however, with Friday’s post-earnings slump. 

Earnings of $3.13 a share easily topped expectations by 32 cents. Revenue of $53.38 billion grew 12.4% year over year and beat estimates by more than $1 billion.

The strength was below the surface too. E-commerce sales erupted more than 90% year over year, while comparable-store sales rose 14.1%, excluding fuel and foreign exchange headwinds. Still, coronavirus-related costs seem to be weighing on sentiment. 

Was this a sell-the-news event? It seems that way, given that Costco already provides monthly sales updates. That said, the slight weakness may be a buying opportunity.

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Trading Costco Stock

Daily chart of Costco stock.

Daily chart of Costco stock.

Ahead of earnings, Costco rallied up toward $348 resistance, which has kept the stock in check for the past month. However, in Thursday’s session, the stock was able to bounce hard from the 50-day moving average and close above the 20-day.

That likely had bulls sniffing for some upside follow-through over resistance. Alas, shares are again dipping and flirting with the 50-day moving average.

I want to see this level hold for bulls to stay in control. However, as long as Costco stock remains above $330, it looks okay on the long side, technically speaking. 

Below $330 puts its below the August breakout spot and last week’s low at $331.20. It would also mean that the 50-day moving average and 10-week moving average failed as support.

However, a break of $330 may be met with support near the pre-coronavirus highs around $323 and the 100-day moving average.

If Costco closes below the 50-day moving average, I’d be cautious but not panicked. That said, it would have me taking a wait-and-see approach.

On the upside, shares need to reclaim the 20-day moving average and clear $350. Above puts the 161.8% extension in play, followed by the prior all-time high up at $363.70. If Costco goes on to make new highs, look for a push toward the two-times range extension, up at $377.56.