With close to 600 stores, Costco Wholesale (NASDAQ: COST) is one of the largest membership wholesale retailers. The recent buyout announcement of BJ Wholesale Club (NYSE: BJ) led me to have a closer look at some of its competitors and I promptly found a nice long setup in Costco Wholesale (NASDAQ: COST).
On the weekly chart we see a nice upward sloping channel that has its roots in August 2010. Both the upper and lower ends of the channel were tested in May and June and the stock now seems to have room to the upside again within the channel.
Since the end of April Costco Wholesale (NASDAQ: COST) has traced out a bull flag pattern which it broke out of ever slightly late last week. Furthermore, the move from the recent lows in March to the recent highs in mid May held the 50% retracement (horizontal red measurements) in early June, from which the stock then attacked the breakout of the bull flag.
Technical analysis 101 for a bull flag breakout would in this case lead us to final upside target near $93 if one buys into this stock near yesterday’s closing levels of around $81.30. I would point out two things however. First the major U.S. equity indices are much overbought in the near-term and I would expect stocks to pull back some here in coming days. Second, my style dictates me to take at least partial profits ahead of levels that are apparent to the broader investment public.
The trade I see setting up here is to go long Costco Wholesale (NASDAQ: COST) at $81.30 or better with a stop at $78.90 and a profit target at $86.