Everyone loves a story that makes sense, Jim Cramer told viewers of his Mad Money program Friday night, but sometimes the confusing stories make for the biggest opportunities. Case in point, Costco Wholesale Corp. (COST) .
The company chose to shutter some very profitable departments, like glasses, hearing aids and their cafeteria, until they could figure out how to open those areas safely. The upside? This essential retailer was able to stay open thanks to the built-in social distancing of their extra-wide aisles.
Let's check out the charts of this Action Alerts PLUS holding.
In the daily bar chart of COST, below, we can see that since February the stock has traded in a tighter and tighter high/low range. Prices have moved close to the apex of this pattern so we are overdue for a breakout. Triangles typically break out in the direction of the previous trend so I would look for COST to break out on the upside.
Trading volume has diminished through the pattern which is typical -- the tighter range means less opportunity for profit and that usual sends traders to other stocks. The On-Balance-Volume (OBV) line has declined into May and the Moving Average Convergence Divergence (MACD) oscillator has recently been holding around the zero line.
In the weekly bar chart of COST, below, we can see the sideways price action the past four months. Prices are holding just above the rising 40-week moving average line.
The weekly OBV line has moved sideways and the MACD oscillator looks close to a turn to the upside for a new buy signal.
In tis daily Point and Figure chart of COST, below, we can see a nearby price target of $277. A trade at $316 could turn the chart bullish.
Bottom-line strategy: Traders could go long COST risking a close below $300. Go long on strength above $312 and $316.