Costco is dipping despite better-than-expected earnings. Here's what we're looking for when it comes to support.

Buy the Costco Earnings Dip? Let's Look at the Chart

Costco is dipping despite better-than-expected earnings. Here's what we're looking for when it comes to support.

Costco Wholesale  (COST) - Get Report reported better-than-expected fiscal fourth-quarter earnings and revenue. Despite that, shares are down about 3% in early Friday trading.

Retail is made up of the haves and the have-nots. Fortunately for investors, Costco is in the former group, which consists of other retailers like Target  (TGT) - Get Report and Walmart  (WMT) - Get Report.

It may not feel that way, however, with Friday’s post-earnings slump. 

Earnings of $3.13 a share easily topped expectations by 32 cents. Revenue of $53.38 billion grew 12.4% year over year and beat estimates by more than $1 billion.

The strength was below the surface too. E-commerce sales erupted more than 90% year over year, while comparable-store sales rose 14.1%, excluding fuel and foreign exchange headwinds. Still, coronavirus-related costs seem to be weighing on sentiment. 

Was this a sell-the-news event? It seems that way, given that Costco already provides monthly sales updates. That said, the slight weakness may be a buying opportunity.

Costco is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells COST? Learn more now.

Trading Costco Stock

Ahead of earnings, Costco rallied up toward $348 resistance, which has kept the stock in check for the past month. However, in Thursday’s session, the stock was able to bounce hard from the 50-day moving average and close above the 20-day.

That likely had bulls sniffing for some upside follow-through over resistance. Alas, shares are again dipping and flirting with the 50-day moving average.

I want to see this level hold for bulls to stay in control. However, as long as Costco stock remains above $330, it looks okay on the long side, technically speaking. 

Below $330 puts its below the August breakout spot and last week’s low at $331.20. It would also mean that the 50-day moving average and 10-week moving average failed as support.

However, a break of $330 may be met with support near the pre-coronavirus highs around $323 and the 100-day moving average.

If Costco closes below the 50-day moving average, I’d be cautious but not panicked. That said, it would have me taking a wait-and-see approach.

On the upside, shares need to reclaim the 20-day moving average and clear $350. Above puts the 161.8% extension in play, followed by the prior all-time high up at $363.70. If Costco goes on to make new highs, look for a push toward the two-times range extension, up at $377.56.

Reprinted from yahoofinance, the copyright all reserved by the original author.

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