Costco (COST) - Get Report is headed for a gap higher open Thursday morning. After Wednesday's bell the discount retailer released its third-quarter earnings report. Investors are driving shares past heavy resistance on the news, setting the stage for more upside. COST will have a very solid base underneath as we head into the end of the year.
Shortly after reaching new 2016 highs in mid August COST began to tumble. By late September the stock had fallen over 12% taking out multiple support areas along the way. COST spent the bulk of October trading in a narrow range but as November began this healthy consolidation gave way to a push to fresh lows. The stock ended a nine-day losing streak just above the $142 area, a level within 3% of the stock's 2016 lows.
Heading into the election COST was tracing out a bullish divergence in its MACD (moving average convergence/divergence) indicator. The stock responded well during the post-election ramp but was well constrained by heavy supply near the 200-day moving average.
During Wednesday's action COST managed to close above the November high on accelerating trade. In after-hours trade the stock was building on that bullish action and will likely open well above the 200-day moving average.
With this key level underneath, the stock is set up well for a new rally leg. Investors should consider the stock a low-risk buy between $154.50 and $152. This key zone includes the stock's November highs as well as the 200-day moving average. A close back below $150 would take out the December low, indicating a failed breakout.
At the time of publication, Cramer's Action Alerts PLUS had no position in stocks mentioned.