Warehouse Retailer Costco Poised for Earnings Beat

Members-only big box retailer Costco Wholesale Corporation (COST) is due to report earnings after the closing bell on Thursday, May 31, with the stock above a "golden cross" since Nov. 22, when it closed at $172.48. The stock is now above my semiannual pivot of $191.73 and shy of my annual risky level of $202.84. Costco shares closed Wednesday, May 30, at $199.64, up 7.3% year to date and just 1.1% below the 2018 high of $201.77 set on May 22. The stock is 13.6% above its Feb. 9 low of $175.79.

Analysts expect Costco to post earnings per share of $1.68 to $1.70 when it reports results after the closing bell on Thursday, May 31. Edward Jones analyst Brian P. Yarbrough, CFA, rates Costco shares a buy in anticipation that the warehouse retailer will sustain strong membership renewals, with a potential membership rate increase. The risks are that membership trends and foot traffic slow, which would put a drag on profits. (See also: Costco Stock Could Break Out After Analyst Upgrades.)

The daily chart for Costco

Costco has been above a "golden cross" since Nov. 22, when the stock closed at $172.48. 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. The upper horizontal line is my semiannual pivot of $191.73, which was a magnet between Jan. 3 and May 4. The lower horizontal line is my second quarter value level of $181.83, which held as April began. My annual and monthly risky levels of $202.84 and $213.14, respectively, are above the chart.

[Find out more about using simple moving averages to guide your trading decisions in Chapter 2 of the Technical Analysis course on the Investopedia Academy.]

The weekly chart for Costco

The weekly chart for Costco is positive but overbought, with the stock above its five-week modified moving average of $195.39. The stock is well above its 200-week simple moving average of $152.87, which is the "reversion to the mean." The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 81.61 this week, up from 78.76 on May 25 and rising above the overbought threshold of 80.00.

Given these charts and analysis, investors should buy Costco shares on weakness to my semiannual and quarterly value levels of $191.73 and $181.83, respectively, and reduce holdings on strength to my annual and monthly risky levels of $202.84 and $213.14, respectively. (For additional reading, check out: Costco’s Business Model Is Smarter Than You Think.)