Costco Before Earnings
Analysts this month cut price targets on Costco (COST) but mostly kept their buy ratings. Oppenheimer also raised the chance of a stock split or a special dividend.
Costco (COST) is down about 4.3% over the past year. That trails its own sector: the consumer staples ETF (XLP) is up 5%, and the S&P 500 is up 16%. Big box rivals also beat it. Target (TGT) is a strong outperformer, Walmart (WMT), which also owns Sam's Club, beat Costco too, and BJ's Wholesale Club (BJ), the closest match as another wholesale store, sits roughly on par.
The Chart
Since the highs hit after the last earnings report, the stock has traded in a downward sloping channel. Copy the top trend line and match it to the lows, and it covers most recent action. A steeper, sharper downward trend line formed in recent weeks and has been broken, but there was no strong breakout. Moves right before earnings deserve caution, since momentum trading can push through levels without meaning much. Earnings itself can rewrite the whole picture in a heartbeat.
Upside levels: a relative high near 923, a small gap and a later high near 955, and another high near 980. Downside levels: 895 held most closing prices (it was an old high, then a small post-gap-up low), with notable lows at 875 and 853.
The moving average path leans down. Price did cross above its 5-day EMA and broke above a short-term RSI downtrend, though caution applies before earnings. The 21-day EMA (teal, one month) sits at 914.46, the next upside level. Price is above the RSI 50 midline. The heaviest trading concentration runs from about 910 to about 957, with the point of control - the single busiest price - at 918.
Example Trade
The next monthly options expiration carries an expected move of about 5.2% plus or minus. This is a more aggressive setup betting the recent lows hold despite the bearish tilt, backed by the fact that everyone still has a buy rating.
The trade: sell the October 18th 890/880 put vertical for a 335 credit, a neutral to bullish outlook with 22 days to expiration. Max profit is the 335 credit; max loss is 665, so risk versus reward is roughly 2 to 1. The expected move is 46.75, or 5.1% plus or minus. The break even at 886.65 is 2.6% below current price, which sits inside the expected range. The bet is simply for price to stay above that break even after earnings.
