Costco Wholesale Corporation (COST) stock rallied more than 4% to a three-month high in Thursday's post-market after the company beat fiscal second quarter profit estimates by 32 cents and reported in line revenues. Revenues rose 7.3% year over year, while quarterly comps missed estimates, lifting 5.4%. The retailer also reported mediocre February comps, rising just 3.5%. The stock barely budged overnight, setting the stage for a bullish open despite broad market weakness.

The off-hours rally has filled the Dec. 12 gap between $219 and $225, and the stock is holding near the top of the big hole ahead of the opening bell. This is considered a neutral zone, signifying resistance when filled slowly but marking a bullish change of character when a gap fills the gap. Early price action should dictate which side is in control, with a rapid thrust into the $230s or a reversal that targets gap support under $220.

COST Long-Term Chart (1992 – 2019)

Long-term technical chart showing the share price performance of Costco Wholesale Corporation (COST)

A multi-year uptrend ended in the low $20s in 1992, yielding a decline into the single digits one year later. The stock turned higher in 1995, entering a trend advance that reached the prior high in the fourth quarter of 1997. A 1998 breakout gathered momentum, topping out at $60.50 in the second quarter of 2000. Aggressive sellers then took control, dumping price more than 50% in less than two months. A bounce into 2001 failed in the $40s, yielding a test at the 2000 low at the start of 2003.

That marked a buying opportunity, ahead of a steady uptick that posted impressive gains throughout the mid-decade bull market. Costco stock broke out above the 2000 high in July 2007, added 15 points into May 2008 and turned sharply lower during the economic collapse, bottoming out in March 2009 at a four-year low in the upper $30s. That marked the lowest low in the past decade, yielding a strong bounce that completed a 100% retracement into the 2008 high in early 2011. It broke out a few months later, entering a powerful advance that carved new highs into 2015.

Volatility surged between 2015 and 2018, but price action held close to a rising highs trendline (upper red line), setting the stage for a breakout above that resistance level in June 2018. The rally stalled in September, yielding a December breakdown that trapped bulls in a steep decline that reached a six-month low at $189 at year end. This morning's uptick may have cleared that barrier, opening the door to greater short-term upside.

The monthly stochastics oscillator entered a sell cycle in October 2018 and crossed over in March, just below the indicator panel's midpoint. This marks the shortest sell cycle since 2013, while the buy cycle after that crossover lasted just three months, suggesting that market players should remain cautious despite the bullish turn of events. In turn, that shines a bright light on short-term price action that needs to mount resistance in the $220s or risk a major reversal.

COST Short-Term Chart (2017 – 2019)

Short-term technical chart showing the share price performance of Costco Wholesale Corporation (COST) 

A Fibonacci grid stretched across the uptrend leg that started in July 2017 places the December reversal near the 50% retracement, while subsequent action has generated new support at the .382 retracement level near $210. The stock has now remounted the 50- and 200-day exponential moving averages (EMAs), establishing a second support layer near $215. Given this morning's strong action, a pullback into that level should now mark a low-risk buying opportunity. On the upside, the Fibonacci sell-off grid highlights the .618 level at $224, marking support that bulls need to hold into the weekend.

The on-balance volume (OBV) accumulation-distribution indicator broke out above 2008 resistance in the second half of 2018, posting an all-time high in November. Selling pressure into December barely registers, indicating loyal sponsorship that should support a rally to new highs. The indicator could reach the 2018 high ahead of price in Thursday's regular session, generating a bullish divergence that predicts price will eventually play catch-up.

The Bottom Line

Costco stock is trading higher after an upbeat quarterly report and could hit new bull market highs in the coming months.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.