Despite trading within 3% of the March peak, shares of Costco (COST) - Get Costco Wholesale Corporation Report are beginning to look quite vulnerable. The stock closed Tuesday with its third straight loss and has finished in the red during six of the last eight sessions.
Costco remains above key support after yesterday's slight decline but is not far from a potentially damaging breakdown.
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Costco has been trading in a fairly tight range for nearly all of 2016. During this time, the stock has straddled both sides of its 200-day moving average while chopping around between $160 and $140. Since last year's powerful fourth-quarter rally, the stock has not been able to fully regain its footing. After the very shallow post-Brexit rebound, more of this type of action appears to be ahead. The likely direction now appears to be to the downside and could potentially result in a retest of the lower band of the stock's six-month range.
In the near term, Costco investors should keep a close eye on the $152 area. A drop back below this key level would push shares back below an upward-sloping 200-day moving average and would violate last week's low. With sellers more in control of the action since June 24 and with a crossover in place on the daily moving average convergence/divergence, this support area will likely face a stiff test soon. Following a clear break through $152, Costco will be headed for the powerful breakout gap left behind left behind after the company's last earnings report. A hold in this key support zone near $145.68 would offer patient Costco bulls a very low-risk entry opportunity.
From a fundamental perspective, Costco is a holding in Jim Cramer's Action Alerts PLUS charitable portfolio. "I do not expect a good month, and we have told subscribers that, but the kinks will be worked out on the difficult transition from American Express (AXP) - Get American Express Company Report to another favorite of ours, Visa (V) - Get Visa Inc. Class A Report ," Cramer said.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.