A series of higher highs and lows on Costco (COST) isn’t always bullish.
Discussed in this article: Costco Wholesale Corporation ( $COST )
I want to look at a particular pattern that we’re seeing here on Costco ( NASDAQ:COST ). What this has been is a broadening formation; it’s looks kind of like a megaphone but what it looks like to me is a top.
Here’s what I’m talking about; you can see the 50-day moving average trending higher, it has been trending higher for a while, you can see that the stocks been printing higher highs, always a good thing, and it’s been printing higher lows, also always a good thing. But if those highs and lows are moving away from each other, in other words the range, the trading range, is getting wider as opposed to back here where it’s really narrow, then it’s a little wider, then it’s a little wider still, and then it’s here, and then what happens?
Ultimately this series of higher highs, while they still continue to move higher, is not able to maintain this line right here. It still looks very nice, happy day, but you don’t see this distance expanding, you don’t see this. So this actually gives you an early warning that the stock just may in fact be topping out. So now we’ve got this technical event that’s giving us more of a sense that the stock might be topping out.
What am I talking about? I’m talking about this stock falling below the 50-day moving average and not really being able to recover; it’s been here for about two weeks or so. With the stock this long below the 50-day moving average, I’m starting to look at this as resistance instead of support. So I would look at Costco ( NASDAQ:COST ) and I wouldn’t want to own it.
If it starts to move up above the 50-day moving average that’s fine, but you’ve got to know my general view of the market is that we’ve got a lot of broken stocks and the ones that you really don’t want to own are the ones that are broken. There are plenty of stocks that are actually still working; those are the ones you want to focus on. What I’m saying is right now Costco ( NASDAQ:COST ) used to be the stock that’s working, now it’s the stock that’s not working.