Since the calendar year flipped, shares of the Issaquah, Wash., company have posted a total return of more than 49%, double the S&P 500's 25%.
And the charts say there could be more where that came from.
Costco's technical trajectory is showing no signs of slowing in Q4 -- quite the contrary. Since the end of the summer, the shares have been forming a textbook bullish price pattern that paves the way toward even higher ground by year's end.
To figure out how to trade it from here, we'll turn to the charts.
It's hard to miss the incredibly consistent up trend that's defined Costco's price action this year. The shares have been bouncing along a well-defined up trend since early this year, catching a bid on every test of trend-line support along the way.
Simply put, those support tests have provided a low-risk, high-reward buying opportunity as Costco rallied. But with those obvious tests in the rear-view mirror, how should investors the trade shares from here?
Costco's trend shifted subtly at the beginning of September, when the shares hit their head on the $305 level for the first time. Since then, Costco has made two attempts to catch a bid materially above $305, only to be swatted lower.
That, paired with the up-trending support level to the downside, forms a textbook example of an ascending triangle pattern, a bullish continuation setup that often shows itself following a big up move.
In Costco's case, the presence of resistance at $305 has helped the shares cool from their overbought condition during the summer. This "time correction" may not seem like much of a correction at all, but it's giving Costco buyers the reset they need to keep the up trend alive here.
Now, the next buy signal comes on a breakout above that $305 line in the sand. The shares are trading today around $302.
Relative strength continues to be one of the most important indicators to keep an eye on in this market. In Costco's case, relative strength is holding on to an up trend of its own, indicating that the stock continues to systematically outperform the broad market.
Risk management remains crucial here, particularly given the scale of Costco's rally this year. The 50-day moving average has been a very close proxy for trend-line support during much of this year. That makes it a logical (if a bit conservative) place to park a protective stop below.
Wait for the shares to push above $305 before you add a position in Costco to your portfolio here. That's an important signal that buyers are still in control at this point in the rally.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.