Buying Into Costco

 | Dec 20, 2013 | 9:30 AM EST  | Comments
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I have a buy setup in Costco (COST). The larger pattern in this stock is a bullish pattern of higher highs and lows. The price is currently above the 200-day simple moving average and it is now testing a Fibonacci price cluster of support that comes in at the $114.54-4116.11 area. This zone includes the confluence of two 100% projections of prior declines, a .382 and .618 retracement of prior swings along with a 1.618 extension of a minor low to high swing.

So far, the price is holding above this level and I am seeing buy triggers on a 15- and 30-minute chart. If the price can continue to hold above this key zone, the upside potential for this setup is at the 128.92 area. This is the 1.272 extension of the swing into the cluster zone. The 1.272 is always my initial target for any of my trend trade setups. The 1.618 extension is target two and the 2.618 is target three.

Besides the healthy price zone, I'm seeing what I like to call time symmetry. In a trending market, I find that many corrective swings tend to be similar in time and/or price with other swings within the trend.

You can see on the daily chart of COST I have labeled quite a few swings that were rather similar in time. They were between 14-17 trading days. The most recent decline into the low in COST has been 16 trading days. This time symmetry is another reason I like this trade setup. When we see both price and time parameters come together, it does make for a higher probability setup.

Costco (COST) -- Daily
Source: Dynamic Trader

COST is fighting a bit of an uphill battle, as the price is currently below the 50-day simple moving average and the 5/13 EMAs are not yet suggesting that the bulls are fully in control. But there is an area where we can place a relatively low-risk bet with a healthy risk/reward.

As long as the price holds above this key zone, I will consider my buy triggers in this one. A break below this same key support would take me out of the trade instead.

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