COST - strongest seasonal opportunity on my watchlist
I'm sharing a more in-depth update to my Costco post earlier this month.
COST
is a top holding that I like to keep a close eye on. 1-2 times a year, we can find decent opportunities to use swing trades to accumulate and I think that we have two of those opportunities in front of us right now. We've got an immediate setup with clear chart pattern and a brief seasonal drawdown, and a larger setup supported by the strongest seasonal trend in my watchlist.
Long term trend:
We observe repetitive price action within the channel for the long term primary trend. COST regularly moves to the top of the channel, undergoes a secondary corrective trend, and executes a measured move on the breakout of the secondary trend. Note that reverting back to the lower portion of the channel should be expected, emphasizing the importance of profit taking to build this position.
Immediate trend and our first setup:
We recently saw COST make a large measured movement on the May break out of a long term symmetrical triangle. It set up a small replay of this pattern from mid August to September, but hasn't completed the measured move. As previously covered, September is seasonally weak for the broader market and this is typically the worst portion of the month. Thus, a throwback to the cradle of the triangle ~$551-553 is probable. Breakouts from symmetrical triangles have high probability to revisit the cradle and this level also aligns to volume weighted average prices (VWAPs) anchored from highs and lows prior to the pattern, as well as the direction of the 50EMA. Note the fib time zone anchored to the May breakout. This has aligned to peaks and troughs and lines up to where we can expect to see a seasonal high (November) and seasonal low (December/January).
This sets up the first setup:
Seasonal trend and our second setup
In terms of seasonality, COSTs two consecutive strongest months of the year are October and November. And the lowest performing month December. COST has closed positively in each of the last 10 Novembers with an average return of 5.5%. Expanding to 20 years we see that there are only 2 of 20 Novembers that have had a negative close (one of which was during the great recession).
The confluence between the fib time zone and seasonality anticipate hitting the objective of our first move in the October/November time frame. The December seasonality and January fib time zone confluence project a pullback to open up our second opportunity. However, be aware that macro events or strong guidance in September earnings could shift our pivot points.
Second setup:
COST
is a top holding that I like to keep a close eye on. 1-2 times a year, we can find decent opportunities to use swing trades to accumulate and I think that we have two of those opportunities in front of us right now. We've got an immediate setup with clear chart pattern and a brief seasonal drawdown, and a larger setup supported by the strongest seasonal trend in my watchlist. Long term trend:
We observe repetitive price action within the channel for the long term primary trend. COST regularly moves to the top of the channel, undergoes a secondary corrective trend, and executes a measured move on the breakout of the secondary trend. Note that reverting back to the lower portion of the channel should be expected, emphasizing the importance of profit taking to build this position.
Immediate trend and our first setup:
We recently saw COST make a large measured movement on the May break out of a long term symmetrical triangle. It set up a small replay of this pattern from mid August to September, but hasn't completed the measured move. As previously covered, September is seasonally weak for the broader market and this is typically the worst portion of the month. Thus, a throwback to the cradle of the triangle ~$551-553 is probable. Breakouts from symmetrical triangles have high probability to revisit the cradle and this level also aligns to volume weighted average prices (VWAPs) anchored from highs and lows prior to the pattern, as well as the direction of the 50EMA. Note the fib time zone anchored to the May breakout. This has aligned to peaks and troughs and lines up to where we can expect to see a seasonal high (November) and seasonal low (December/January).
This sets up the first setup:
- Entry ~551-553 the cradle of the current symmetrical triangle and VWAPs from the the high and low prior to it's formation.
- TP $570 at the top of the measured move.
- SL $527 which is 1 average true range (ATR) below the VWAPs from the last two lows in the prior symmetrical triangle.
- Note - Since I already have a very low cost basis I won't use a SL for the first setup and will instead use a much more aggressive stop loss from the second setup.
Seasonal trend and our second setup
In terms of seasonality, COSTs two consecutive strongest months of the year are October and November. And the lowest performing month December. COST has closed positively in each of the last 10 Novembers with an average return of 5.5%. Expanding to 20 years we see that there are only 2 of 20 Novembers that have had a negative close (one of which was during the great recession).
The confluence between the fib time zone and seasonality anticipate hitting the objective of our first move in the October/November time frame. The December seasonality and January fib time zone confluence project a pullback to open up our second opportunity. However, be aware that macro events or strong guidance in September earnings could shift our pivot points.
Second setup:
- Entry - ~$537 which aligns to the 0.382 fib of the extension from the May low to our last high, and aligns to the trending paths of the VWAPs from the April and May lows.
- TP - ~$590-600 which align to 1.618 fib of a retrace from the $570 high to our entry, as well as the top of the channel and the prior all time high. Note that this is exceeds the current 12-month consensus price target.
- SL - ~$508-510. This should fall 1 ATR below the bottom of the bottom of the channel, as well as the 200SMA.