Costco Wholesale (COST) broke hard to the downside in June and July, but prices have rebounded in recent days. Is the worst over? Will there be a "retest"of the July lows? Or is the train leaving the station?
Lots of questions and so few answers, so let's check the charts and indicators for some guidance.
In this daily bar chart of COST, above, we can see the high-volume downside price gap in mid-June. The 50-day moving average line was broken as well as nearby support at $170. Prices continued to sink the rest of June with the 200-day moving average line being broken as well as support around $165. The $150 support area held in July. The daily On-Balance-Volume (OBV) line declined from mid-June to mid-July and has turned upward a bit. There is a bullish divergence between the rising momentum picture from June to July and the declining price pattern. A bearish death cross is possible in the days ahead as the 50-day moving average line is very close to crossing below the rising 200-day moving average line.
In this weekly bar chart of COST, above, you can see prices are below the rising 40-week moving average line. The line intersects around $165 and could provide some resistance if prices approached it. The weekly OBV line is pointed down and the weekly MACD oscillator is deep in bearish territory below the zero line.
In this Point and Figure chart of COST, above, we can see the sharp June/July decline without price gaps. There is a big consolidation pattern below the market, but the chart also shows a possible downside price target in the $118 area.
Bottom line: COST does not have much of a base to support a sustained advance. A pullback and retest of the July lows is likely. The lows could hold or break -- we don't know yet, but a close below $150 could precipitate further weakness.