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Bullish On Costco, But Earnings First

Published May 20, 2017
8:30 PM

On May 17, Costco (COST) bounced off of its reoccurring support level. This has been solid support since August 2015. Costco also has earnings in focus this week. The estimated EPS is nearly where it was during the previous quarter's EPS which was a massive miss. A similar massive miss this time around will yield the analysis contained herein almost worthless. However, positive earnings and forecasts should easily meet the projection in this article.



COSTCO WHOLESALE CORPORATION Chart From TradingView.com

When we take a look at other technical indicators, the relative strength index (RSI) is at 47.4805. RSI tends to determine trends, overbought and oversold levels as well as likelihood of price swings. I personally use anything above 75 as overbought and anything under 25 as oversold. Currently the RSI is relatively neutral and it could go any direction.

The true strength index (TSI) is currently 11.2060. The TSI determines overbought/oversold levels and/or current trend. I solely use this as an indicator of trend as overbought and oversold levels vary. The TSI is double smoothed in its calculation and is a great indicator of upward and downward movement. The current reading declares the stock has been moving down for the past two weeks.

The positive vortex indicator (VI) is at 0.9097 and the negative is at 0.9696. When the positive level is higher than 1 and higher than the negative indicator, the overall price action is moving upward. When the negative level is higher than 1 and higher than the positive indicator, the overall price action is moving downward. Currently the negative and positive indicators are moving closer together, with the positive moving up. With continued upward movement of this indicator the stock will go with it.

The stochastic oscillator K value is 16.3099 and D value is 9.6028. This is a cyclical oscillator that is highly accurate and can be used to identify overbought/oversold levels as well as pending reversals and short-term activity. I personally use anything above 80 as overbought and below 20 as oversold. When the K value is higher than the D value, the stock is trending up. When the D value is higher that the K value the stock is trending down. The stochastic is currently oversold and should move up soon.

Considering the RSI, TSI, VI and stochastic levels, the overall direction favors a move to the upside. Based on historical movement compared to current levels and the current position, the stock could gain at least 3.33% over the next 19 trading days if not sooner. The major hurdle for this movement will be from the earnings released this week.

DISCLOSURE: I currently do not have positions in the stock mentioned above. I may to enter a position within the next 72 hours. Historical movements and technical indicators should never be the sole basis for entering positions involving risk. Make sure appropriate research is conducted prior to taking any risk in a marketplace.

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