Costco Still Ripe for the Picking

 | Mar 12, 2014 | 7:30 AM EDT  | Comments
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My original setup in Costco (COST) was a countertrend buy against clearly defined Fibonacci price support, between $108.42 and $109.44. The stock was testing that support as it headed into a cluster of Fibonacci timing cycles between Feb. 4 and Feb. 7. Costco's actual low was made on Feb. 4 at $109.50 -- close enough for government work. This setup is illustrated on the daily chart below.

Costco (COST) -- Daily
Source: Dynamic Trader

Now, if the bigger-picture scenario is to play out in this name, the upside potential is all the way to the $130.64 area -- the 1.272 extension of the swing into the Feb. 4 low. With that in mind, I am currently seeing a secondary Costco entry via the original setup.

After the initial rally off the Feb. 4 low, the stock underwent a symmetrical $5.20 pullback to the Feb. 4 low. As you can see on the chart, I've labeled the prior decline, which lasted a very similar $5.26.

Besides the symmetry projection at the $112.21 level, Costco also held above another price cluster of support -- the coincidence of a 1.272 extension of a prior swing and the 0.786 retracement back to the Feb. 4 low. This "new" key price cluster was between $111.21 and $112.21, and the actual low was made at $112.27, just a few pennies above that area. After the stock tested this zone, buy triggers cropped up on both the 15- and 30-minute charts.

See below for an example of a trigger chart -- a 30-minute chart of Costco.

Costco (COST) -- 30-Minute
Source: Dynamic Trader

If Costco continues to hold above the March 6 low, the initial upside target for a move off this area will comes in at $118.88. There are some other key relationships just above the first target, as well, including key resistance at $118.88 to $120.68. If the first target is met, remember to trail up your stops! Also, note that I personally prefer using call options for this trade.

Now, in the bigger picture, there is still potential for the stock to hit the target up at the $130 handle -- but let's take it one step at a time. I will consider myself wrong on the trade if Costco violates the March 6 low.

Beyond Costco, I'd also like to very briefly revisit my setup in Salesforce.com (CRM).

Salesforce.com (CRM) -- Daily
Source: Dynamic Trader

Following the stock's initial rally off support, the original support cluster in Salesforce.com is currently being retested. As long as the stock continues to hold above this zone -- $58.56 to $59.77 -- I will consider buy entries.

Please refer here for more information on trade triggers. See here for general guidance on Fibonacci trade setups.

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