On the day of Costco’s fourth quarter earnings report the stock closed at its best levels since mid June.  The stock was hit hard immediately that afternoon as the news hit.  By Friday morning’s open COST was sharply lower after beginning the day with a huge downside gap.  This was the stock’s fourth major breakdown gap of the year and, like the others, the aftermath will include more downside. 

This morning COST is dipping below its September lows as an ugly monthly downside reversal begins to take shape.  Just last week shares moved past the September peak extending the powerful rebound off solid support near August lows to 11%.  With intense overhead pressure now in place a drift back down to the summer lows is likely.  If COST can regain its footing near $150.00, which held multi-week lows in July and August, a very low risk entry opportunity will develop for patient investors.

New buys near the $150.00 area should be protected with a fairly tight stop.  A close below $148.00 would indicate this important support zone is giving way and a deeper sell off is developing.  The need for a narrow risk window is the daily MACD set up which is just rolling over now and is far from oversold. 

At the time of publication we do not have a position in COST.