4 Trade Ideas for Costco: Bonus Idea

Here is your Bonus Idea with links to the full Top Ten:

Costco, $COST, started to move higher out of consolidation in September. The initial move failed and it gapped back into the consolidation channel but almost immediately started higher again. It slowed and started to consolidate over support in December before a push to a all-time high at the end of January. It pulled back had and fast to the 100 day SMA from there and bounced. The bounce stalled at a lower higher and moved back lower in a channel for the next two months. Last week it broke that channel to the upside.

On a Measured Move it gives a target to 201. The RSI is turning back higher toward the bullish zone with the MACD crossing into positive territory. The Bollinger Bands® are also opening higher to allow for a move up. There is resistance at 193 and 195.75 before 200. Support lower comes at 178 and 185.50 then 181 and 178.50 before 176. Short interest is low at 1.7% and the company is expected to report earnings next on May 31st.

The April options chain shows open interest the biggest at the 190 strike on both sides, with the puts tailing lower and calls to the upside. The May chain also shows the biggest open interest at the 190 strike on the call side. But it is biggest at the 175 strike on the put side. The June 1 Expiry chain, the first after the next earnings report, is just starting to build, so looking at the June monthly shows the put side with open interest spread from 158 to 185, while it is more focused at 185 and then from 190 to 195 on the call side. Options traders are predicting a move of about $13 between now and expiration.

Costco, Ticker: $COST

Trade Idea 1: Buy the stock now (over 186) with a stop at 184.

Trade Idea 2: Buy the stock now (over 186) and add a June 185/175 Put Spread ($2.70) while selling the June 200 Calls ($2.22 credit).

Trade Idea 3: Buy the June 190/May 200 Call Diagonal ($1.63) and sell the May 170 Puts (56 cent credit).

Trade Idea 4: Buy a June 178/190/200 Call Spread Risk Reversal ($1.20).

After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which as we head into April options expiration saw the equity markets poke above consolidation in a signal of strength but had trouble holding it Friday.

Elsewhere look for Gold to consolidate with a bias higher while Crude Oil continues its run higher. The US Dollar Index continues to move sideways while US Treasuries consolidate with a bias higher. The Shanghai Composite and Emerging Markets look to continue to consolidate, with the Chinese market near lows and Emerging Markets at highs.

Volatility looks to continue to drift lower easing the pressure on the equity index ETF’s SPY, IWM and QQQ. Their charts had pressed higher in the shorter timeframe but printed an ugly Friday. On the longer timeframe they look to be reversing higher though, a time divergence. Use this information as you prepare for the coming week and trad’em well.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.