In his Real Money column, "This Game of Survival Is Rigged" Jim Cramer recommended stocks that he expected would be survivors of the Covid-19 pandemic, such as Costco Wholesale Corp. (COST) . I have some restocking to do so let's pay a visit to this Action Alerts PLUS holding.
In the daily bar chart of COST, below, we can see some interesting price movements. Prices did not decline much from the middle of February but they were extremely choppy into early April. Te stock rallied back near its highs by the middle of April but has since slipped lower to retest the 50-day and 200-day moving average lines.
The shape of the trading pattern since the middle of January looks like a rare diamond pattern. The problem with diamond patterns is that they can be continuation patterns where the stock breaks out on the upside or they can be reversal patterns where the stock turns lower.
The trading volume has been very heavy since late February but the On-Balance-Volume (OBV) line has steadily declined from the middle of February telling us that sellers of COST have been more aggressive for weeks now. The Moving Average Convergence Divergence (MACD) oscillator has been moving above and below the zero line the past few months.
Bottom-line strategy: So maybe we have a rare diamond pattern on COST. Will the stock break out on the upside and continue its long-running advance or will it make a reversal and head lower? Stay nimble. Keep positions small until the new trend is established.