Retail is in some ways acting as a microcosm for the general market. Just as there are areas doing very poorly, other areas are shining. Costco stock is among the discount chains thriving in an inflationary environment.
Swing Trading Example: Costco Stock
Costco Wholesale had a strong steady run in 2021. But like many stocks, the start of 2022 brought a correction to it. What was notable about Costco stock is that the correction was mild by comparison, only falling 18%. And while indexes were making new lows in February, Costco stock held.
Once Costco started carving a short handle onto its cup (1), its relative strength line was already well into new high ground (2) ahead of the price. The 10-day moving average line also seemed to contain the pause. That earned it a spot on SwingTrader as it pushed through the high of its handle (3).
Short-term Moving Average Offers Support
When deciding profit goals on a position, it's important to recognize that stocks move at different speeds. Costco stock tends to be slower. We targeted a 2.5% gain as an initial goal for taking some profit. It hit that briefly at the open on March 21, but came right back down (4).
After a week of consolidating, Costco stock hit that level again and we took our first third of profit (5). Again, the 10-day line contained the move as COST stock went sideways.
It's moving day on this week's podcast as we cover Reminiscences Of A Stock Operator's Assistant
When Costco stock hit 5% profit (6), we decided to try and give it more room. We already locked in some profit and our stock exposure overall was low as we sold into the market rally strength. Costco seemed to offer more price stability should the market take a breather from its strong rally. Over the next few days, Costco stock found support again at its 10-day line.
A Final Exit
As Costco approached 600, that seemed like a good area to take another round of profit. Right around 10% above our entry. But the power Costco had when it crossed 600 was impressive (7). We decided to give it more room since our exposure was still low and this was one of the few stocks in the market working.
On the other hand, 4% jumps in a day are unusual for Costco stock. It wasn't unusual to expect the stock to take some time to digest the gains. But when it reversed the gains nearly as quickly, undercutting the lows of the gap up day, we locked in our remaining profit (8). It was also a decisive close below the 5-day moving average line.
But what of the 10-day? In our previous tests of the 10-day line, the breach of the 5-day was less dramatic and more gradual. The early exit saved the following day when Costco stock did lose its support at the 10-day line (9).
That's not to say that Costco stock is broken. Far from it. It's still holding up well and could be kept as a position trade or watched for a new swing trading entry.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
