Costco Wholesale Corporation (COST) stock surged 2.8% to an all-time high on Tuesday after Oppenheimer upgraded shares to “Outperform” and set a new price target at $336. The bullish call follows a September downgrade, highlighting the reduction of headwinds achieved by the phase one trade deal and the United States-Mexico-Canada Agreement (USMCA) agreement. Analyst Rupesh Parikh noted that Costco stock has underperformed the S&P 500 since August and could now play catch-up in a fresh buying surge.
The big box giant reported impressive 9.0% year-over-year comparative sales growth during the 2019 holiday season, compared to the 3.4% sector-wide increase reported by Mastercard Incorporated (MA) on Dec. 26. In addition, Costco stock is no longer technically overbought after grinding through a four-month trading range, raising the odds that this assault on new highs will attract significant buying power in coming weeks.
COST Long-Term Chart (1997 – 2020)
A 1997 breakout cleared 11-year resistance in the mid-teens, generating a powerful trend advance that topped out at $60.50 in April 2000. The stock dropped like a rock in the next two months, giving up more than 50% of its value before finding support in the mid-$20s. It traded within those range boundaries for the next seven years, ahead of a successful test at range support in the first quarter of 2003.
The subsequent uptick completed a round trip into the prior high in 2006, yielding more than a year of narrow sideways action, followed by a 2007 breakout that peaked in the mid-$70s in the summer of 2008. The stock fell about 50% during the economic collapse, holding 13 points above range support at the March 2009 low. That marked a historic buying opportunity, ahead of a steady advance that completed a 100% retracement into the 2008 high in 2011.
An immediate breakout eased quickly into a rising channel that persisted into the February 2015 high at $156.85. The subsequent decline broke channel support during August’s mini-flash crash, but Costco stock bottomed out in that session and bounced into a new channel that held intact into a June 2018 breakout. The stock has maintained this bullish trajectory into 2020, despite a steep decline in the fourth quarter of 2018.
The monthly stochastics oscillator, which hasn’t dropped into the oversold zone since 2015, crossed into a buy cycle in March 2019 and reached the overbought zone in May. It has held that lofty level for the past nine months, signaling impressive relative strength that could persist through most of 2020. Remarkably, the indicator came within a session or two of a major sell signal prior to this week’s upgrade and breakout to a new high.
COST Short-Term Chart (2017 – 2020)
The on-balance volume (OBV) accumulation-distribution indicator topped out in 2015 (red line) after a long accumulation phase and dropped into a sideways pattern that persisted into a breakout in the third quarter of 2018. It tested new support for six months and took off in the strongest buying surge in five years, posting a long series of new highs. This bullish activity, when taken together with years of channeled price action, points to long-term institutional sponsorship that is likely to persist through the early years of the new decade.
Sidelined investors looking to get on board can buy right here if they have relatively high risk tolerance. More conservative players can wait for a pullback that might undercut new support at $307 and target the Jan. 9 unfilled gap between $295 and $297. That decline would also test the rising 50-day exponential moving average (EMA), suggesting that it would attract a healthy supply of dip buyers ahead of a potential bullish advance into the $330 to $350 zone.
The Bottom Line
Costco stock broke out above four-month resistance after a major upgrade and could reward shareholders with superior gains in the coming months.
Author: Alan Farley
Source: Investopedia: Costco Stock Breaks Out After Analyst Upgrade