In his Real Money column "This Could Be the Bizarre Consequence of a Lost Pandemic Year", Jim Cramer said the surprising strength of consumers has been a riddle for months. Despite the pandemic and record unemployment, consumers are still spending at the likes of Costco Wholesale Corp. (COST) , Home Depot (HD) and Williams-Sonoma (WSM) .
But Cramer told viewers that he's figured it out.
Before the pandemic, consumers spent money on things like restaurants, movies and vacations, all things they can no longer do. That money is instead flowing into their homes and the things they need for their home office, home schooling and entertainment needs.
This new consumer is spending, but is also paying down their credit card debt and boosting their savings just in case, which is the prudent thing to do in uncertain times.
Let's check out the charts of Costco. When we lasted visited with COST way back on July 9 we wrote that, "If you are still long COST -- great. If you are aside then look to go long above $322 (I like to buy strength and not pullbacks). Risk a close below $308. The $355 area is our price target." Now that prices have reached the $385 area an update is overdue.
In the daily bar chart of COST, below, we can see that prices struggled when they reached the $355 target area giving it some validity. COST corrected lower into September but found some buying interest around the rising 50-day simple moving average line. The 200-day moving average line has been bullish all year and was last tested in June.
The On-Balance-Volume (OBV) line shows strength since a low in May and its rise tells us that buyers of COST have been more aggressive. The Moving Average Convergence Divergence (MACD) oscillator is above the zero line and turning upward for a fresh outright buy signal.
In the weekly bar chart of COST, below, we can see that prices have more than doubled in the past three years. COST is trading above the rising 40-week moving average line.
The weekly OBV line is pointed up and the trend-following MACD oscillator is bullish.
In this daily Point and Figure chart of COST, below, we can see the uptrend without volume, indicators and even time. Prices are pointed up and the software is projecting a potential price target in the $482 area.
Bottom-line strategy: I am assuming traders are still long COST from July 9 or earlier. Raise sell stop protection to just below $360. On the upside the round number of $400 and then the Point and Figure target of $482 are the price objectives now.