Costco Is Vulnerable and Headed Lower
Costco (COST) - Get Report is extending yesterday's high-volume decline. On Thursday, the stock fell over 2.4% after reporting disappointing sales figures. It managed to hold on to key support near $147 as the session came to a close, but this morning the stock is getting hit again.
Costco began this month in a vulnerable position and, following the last two days, shares are even more so.
Click here to see the below chart in a new window.
Today's clear break of support is leaving behind a huge resistance zone. Once Costco does find its footing, a very solid base will need to be in place before the stock can move past the early May high. In the near term, more downside is ahead before Costco bottoms. As this process plays out, investors should keep a close eye on the 2016 lows set back in early February. If Costco can entice patient bulls as the $141 area comes into play, the beginning of a base could be at hand. A hold in this area would also correspond to a divergent low in the daily moving average convergence/divergence indicator, adding more support to the pattern.
Until a new support area is reached and a base is built, Costco will likely be a frustrating long. With shares now below both the March and April lows, any light bounce will be met with supply. It will likely prove wise to remain the sidelines until the dust clears.
From a fundamental perspective, Costco is a holding in Jim Cramer's Action Alerts PLUS charitable portfolio. Cramer and Research Director Jack Mohr wrote on Thursday:
"We expect near-term headwinds (including the AmEx/Visa transition) to weigh on shares in the short term, but we reiterate our long-term conviction of the strength of this name, given the confluence of tangible catalysts the should help drive a virtuous cycle of accelerating sales growth, operational leverage and earnings momentum, all of which give us reason to reiterate our long-term $175 price target, reflecting 28x consensus 2017 earnings per share."
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
