Mapping the Market: Costco has momentum to rally on
By Christopher Romano
Nov 6 (Reuters) - Shares in Costco have shot higher by about 20% since late September, and the rally may have plenty of fuel for further gains, technical analysis suggests.
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Click here for a detailed technical analysis chart.
Technical analysts scrutinize charts of past price data to map out where a stock might go next. When shares are gaining like Costco COST.O, chart watchers often use something called Fibonacci projections. This technical analysis tool calculates potential price targets as a percentage of a stock’s recent rise.
In Costco’s case, one important Fibonacci-projected price target is just below $1,100.
When charts identify price targets, analysts look for other reasons why a particular level might be important. In this case, $1,100 is a big round number – something market participants often refer to as a psychological level because prices tend to gravitate there. Such levels can also be known as resistance, which is a price that caps gains.
Resistance is important to charting the course of a stock rally, and analysts look for these levels to determine stopping points.
The $1,100 level is also significant because it coincides roughly with the all-time high of $1,096.50 that Costco hit in May this year, according to LSEG data.
Further Fibonacci-projected price targets include $1,152 and then $1,238.
Once technical analysts expect a rally, they look for further reasons to bolster – or refute – that view. Measures of volatility and momentum are commonly used for this.
One tool is Bollinger Bands, which measure a stock’s variance from a moving average to gauge volatility.
Another device is the Relative Strength Index, which uses the speed and scale of a stock’s move to measure momentum. Moving Average Convergence Divergence, or MACD, is another widely used gauge. MACD uses moving averages to determine whether momentum is increasing or decreasing.
Currently, all three of these tools are signaling that Costco shares could continue to rise.
However, there is always the risk that market developments can turn against a rally. A fall in Costco shares below the $1,012 to $1,014 area would probably negate the bullish setup.
Costco did not respond to a request for comment submitted through its media relations portal.
What the chart shows:
Costco rallies about 20% since late September
Fibonacci projections suggest a rally up near $1,100, then $1,152 and $1,238 is possible
However, a fall below the $1,012 to $1,014 area would hurt bullish sentiment
(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute investment advice or trading recommendations. )