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Just ahead of the election, Costco Wholesale (COST) - Get Free Report was in the last stage of a deep selloff from its August peak. By late October, a promising divergent low in the daily moving average convergence/divergence was developing just as selling pressure was easing. By Nov. 4, the stock had dropped more than 15%, taking out multiple layers of support along the way.

After the post election ramp-up, it was clear Costco had left behind a major spike low.

A new leg of the Costco post-election rally began with a powerful earnings-inspired breakout gap on Dec. 8. The stock moved higher over the next two weeks, stretching the rally off the November low to more than 16%.

Once shares reached the $165 level, exhaustion set in, and a healthy consolidation began. Since Costco hit this level on Dec. 20, the stock has traded in a narrow range while underlying support has strengthened.

As January winds down, Costco is setting up well for a breakout. In the near term, investors should keep a close eye on the $165 area. A convincing break through this level could spark a run back up to the 2015 and 2016 highs.

As this pattern develops, the stock will remain in a good position as long as it maintains last week's low. A close below $161 would send a clear warning sign that more consolidation will be needed before the stock can mount a challenge of major resistance near $170.

Jim Cramer of the Action Alerts PLUS charitable trust portfolio is also bullish on Costco. He recently wrote an article for subscribers about why Costco is "Amazon-resistant." Cramer has a $175 price target on the stock, and he wrote on Friday that on a pullback to $160 he would upgrade the stock and would consider buying more.  

Costco is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sellsCOST? Learn more now.

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This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.