Costco Wholesale Corporation (COST) missed on earnings when it reported results on May 28. Today, the stock is above a golden cross, but it failed to hold its monthly pivot at $308.02 on June 2. The big box bulk retailer operates as members-only wholesale warehouse for buying consumer goods and gasoline. Costs related to COVID-19 have led to lost sales, as the numbers of customers allowed in the stores has been reduced due to social distancing.

The stock has had a poor track record when consumers are pinched. This was caused by lagging membership fees. The stock is not cheap. Costco's P/E multiple is 36.81 with a dividend yield of just 0.91%, according to Macrotrends.

The stock closed Monday, June 1, at $308.29, up 4.9% year to date, and it is 13.6% above its Feb. 26 low of $271.28. The stock is also 5.2% below its all-time intraday high of $325.26 set on Feb. 21.

The daily chart for Costco

Daily chart showing the share price performance of Costco Wholesale Corporation (COST)
Refinitv XENITH

The daily chart for Costco shows that the stock began the past 52 weeks above the golden cross. This was confirmed on April 3, 2019, when the 50-day simple moving average rose above the 200-day simple moving average to signal that higher prices would follow. This tracked the stock to its all-time intraday high of $325.26 set on Feb. 21.

The stock began 2020 above its semiannual value level at $270.48, which was a positive. After Costco shares topped out at $325.26 on Feb. 21, the stock quickly fell to $271.28 on Feb. 28. This is a trading range that I expect will continue to hold.

Note how choppy the stock has traded since then. The annual pivot at $287.88 was a magnet between March 12 and April 3. The low was just above its semiannual value level at $270.48. The monthly pivot for June at $308.02 failed to hold on June 2.

The trading range is between its semiannual value level at $270.48 and its quarterly risky level at $324.07. In between are the annual pivot at $287.88 and its monthly pivot at $308.02.

The weekly chart for Costco 

Weekly chart showing the share price performance of Costco Wholesale Corporation (COST)
Refinitiv XENITH

The weekly chart for Costco will be downgraded to negative given a close on Friday below its five-week modified moving average at $304.27. The stock is well above its 200-week simple moving average, or reversion to the mean, at $215.91.

The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 60.17 versus 59.20 on May 29. Further weakness over the coming days would cause this week's reading to slide below 59.20. 

Trading strategy: Buy Costco stock on weakness to its annual and semiannual value levels at $287.88 and $270.48, respectively, and reduce holdings on strength to its quarterly risky level at $324.07. The monthly pivot at $308.02 should remain a magnet.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.

The second quarter 2020 level was established based upon the March 31 close, and the monthly level for June was established based upon the May 29 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and the lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.

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