Costco Reports Earnings Between Key Technical Levels

Big-box retailer Costco Wholesale Corporation (COST) reports earnings after the closing bell on Thursday, Dec. 13, with the stock above a "golden cross" on its daily chart and with a weekly chart that would become positive on a positive reaction to earnings.

The stock closed Tuesday, Dec. 11, at $226.50, up 21.7% year to date and in bull market territory at 28.8% above its 2018 low of $175.79 set on Feb. 9. The stock is 7.6% below its all-time intraday high of $245.16 set on Sept. 11.

Analysts expect Costco to post earnings per share of $1.61 to $1.62 when the company reports results after the closing bell on Dec. 13. The big-box retailer is expected to report solid same-store sales based upon recent guidance, with year-over-year growth nearing 20%. The brick-and-mortar retail giant offering bulk orders of consumer staples is expected to continue its same-store sales growth.

Furthermore, Costco's annual membership rate is expected to expand given economic growth, which includes a solid renewal rate above 90%. An annual Costco Gold Star Membership costs $60, and a Gold Star Executive Membership costs $120.

The daily chart for Costco

Daily technical chart showing the performance of Costco Wholesale Corporation (COST) stock

Costco has been above a "golden cross" since Nov. 24, 2017, when the stock closed at $171.62. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average, indicating that higher prices lie ahead.

There are three horizontal lines on the chart. The lowest is my annual pivot of $202.84, which was crossed to the upside on June 8. The second is my semiannual pivot of $223.03, which was a magnet between July 26 and Aug. 17 and again between Oct. 5 and Dec. 10. The third horizontal line is my quarterly risky level at $229.54. Above the chart is my monthly risky level at $252.08.

The weekly chart for Costco

Weekly technical chart showing the performance of Costco Wholesale Corporation (COST) stock

The weekly chart for Costco would be upgraded to positive given a close on Friday above its five-week modified moving average at $227.44. The stock is well above its 200-week simple moving average of $166.68, which is also the "reversion to the mean." The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 39.87, up from 39.24 on Dec. 7. When the stock was setting its all-time on Sept. 11, the stochastic reading was above 90.00, defining an "inflating parabolic bubble," which is the first warning to reduce holdings.

Given these charts and analysis, investors should buy Costco shares on weakness to my annual value level at $202.86 and reduce holdings on strength to my monthly risky level at $252.08. My semiannual and quarterly pivots are $223.03 and $229.54, respectively. 

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.