Long Trade Idea
Enter your long position between 894.17 (the lower band of its horizontal support zone) and 911.17 (the upper band of its horizontal resistance zone).
Market Index Analysis
- Costco Wholesale Corporation (COST) is a member of the NASDAQ 100, the S&P 100, and the S&P 500
- All three indices trade within bearish chart patterns and rising bearish trading volumes
- The Bull Bear Power Indicator of the S&P 500 is in bearish territory with a descending trendline
Market Sentiment Analysis
Equity futures are in the red after the AI-related sell-off continues. NVIDIA will report earnings after the bell today, and analysts expect a move of up to 7% in either direction, or roughly $320 billion. Adding to economic worries is the downbeat consumer outlook from Home Depot yesterday, while preliminary government data on continuing jobless claims showed the labor market in worse conditions than feared. Markets will receive earnings from Target, Lowe’s, and TJX Companies before the bell, which will provide further insight into consumer health.
Costco Wholesale Corporation Fundamental Analysis
Costco Wholesale Corporation is one of the world’s largest retailers and the largest retailer of beef, poultry, organic produce, and wine. Over 30% of Americans regularly shop at Costco Wholesale Corporation, which drives value through its in-house brand. It currently has 905 warehouses serving more than 130 million members.
So, why am I bullish on COST after a 10%+ drop?
The latest earnings report showed a small upside surprise, but October revenues surged 8.6%, confirming that its membership model and value proposition show resilience amid consumer concerns. I am bullish on the rare promise by its CFO to keep prices stable amid stubborn inflation. The return on invested capital is the best in the industry, profit margins are excellent, and its Kirkland Signature brand could shine over the holiday season.
Costco Wholesale Corporation Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 49.26 makes COST an expensive stock. By comparison, the P/E ratio for the S&P 500 is 29.81.
The average analyst price target for COST is 1,055.97. It suggests good upside potential with reasonable downside risks.
Costco Wholesale Corporation Technical Analysis
Today’s COST Signal
- The COST D1 chart shows price action inside its horizontal support zone
- It also shows price action between its descending 0.0% and 38.2% Fibonacci Retracement Fan levels
- The Bull Bear Power Indicator is bearish, but within range of its ascending trendline
- The average bearish trading volumes are higher than the average bullish ones, but hint at bearish exhaustion
- COST corrected more than the S&P 500, but bullish developments are on the rise
My Call
I am taking a long position in COST between 894.17 and 911.17. With the economy and the consumer struggling, I am bullish on the value proposition of its Kirkland Signature brand. Valuations are high, but double-digit EPS growth, October revenue growth, and the return on invested capital drive a bullish narrative.
- COST Entry Level: Between 894.17 and 911.17
- COST Take Profit: Between 991.75 and 1,005.84
- COST Stop Loss: Between 854.28 and 871.71
- Risk/Reward Ratio: 2.45
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