A Second Look at Costco

 | Feb 14, 2014 | 9:00 AM EST  | Comments
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I'm going to share a trade setup today on Costco (COST) that has already provided initial buy triggers, but it is a great one to look at for secondary entries. Why? Because the upside targets for this setup are still way above current levels. The initial upside target comes in at $130.64.

Let's review the trade setup. I'm considering the Feb. 4 low in Costco to be key and pivotal, since it was made on top of a Fibonacci price cluster of support at the $108.42-$109.44 area. This zone included a 0.618 retracement of a prior major swing and three 100% projections of prior declining swings, along with a 1.618 extension of another major swing. The actual low was made at $109.50, which is just pennies above this key support decision. In other words, it was close enough to consider the zone was being tested, and it held above it.

Beyond the price analysis, there was also a nice confluence of timing cycles that came due between Feb. 4 and Feb. 7. The way that I look at timing is if I see a clustering of cycles, I look for a possible reversal of whatever the market is doing into the time window. So in this case, since Costco was trading straight down into this zone, we were looking for a reversal back to the upside. The actual low was made directly within this time window on Feb. 4.

COST
DynamicTrader

I told you we saw the initial buy triggers against the original setup. The 30-minute chart below is an example of what I will look for to tell me it is worth placing a bet against a trade setup zone. On Feb. 6, with a gap, we saw the initial buy trigger, though the entry was not graceful because of the gap up. At that point, however, we knew we wanted to stalk the buy side on pullbacks, with our maximum risk defined below the Feb. 4 low.

This is still the plan, since we are not anywhere near the initial target of $130. A break below the Feb. 4 low gets me to back off the buy side until further notice.

COST, 30-minute
Dynamic Trader

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