Costco Wholesale Corp. (COST) was reviewed at the beginning of the month when I wrote that, "COST has risen nicely this year but I would not consider it extended. Traders could probe the long side of COST around $220 risking to $205 for now and look for further gains to the $245-$250 area." Traders taking that recommendation should be long now but now a slowing in momentum picture tells me to raise stop protection. Let's check our charts again today.
In this updated daily bar chart of COST, below, we can see that COST is still above the rising 50-day and 200-day moving averages. The daily On-Balance-Volume (OBV) line has been stalled recently and suggests a balance between buyers and sellers. In the bottom panel is the 12-day price momentum study which shows lower highs from June to July to August. When this weakening momentum picture is compared to the high highs of price we have a bearish divergence. Prices are rising but at slower and slower pace. A bearish divergence can foreshadow a peak or reversal at times remembering that technical analysis is not perfect.
In this weekly chart of COST, below, we can see some pause in two of the indicators. Prices are above the rising 40-week moving average line but notice how volume has slowed over the past year. The weekly OBV line could be making a double top versus the January high and the MACD oscillator is narrowing.
In this Point and Figure chart of COST, below, we can see a modest upside price target of $232. A decline below $125.94 could start to weaken this chart.
Bottom line strategy: With some caution flags out I think traders who recently went long should raise sell stop protect to just below $215 from below $205.