Chart of the Day: Costco Should Defy the Odds Once Again

Costco (COST) is exhibiting bullish signals ahead of its Thursday earnings report, despite general retail sector headwinds and underperforming the broader market. The stock is trading sideways at the upper end of its range, and while momentum indicators have softened, the Moving Average Convergence Divergence remains on a buy signal. TheStreet Pro portfolio maintains a long position in COST, rating it a "stockpile on pullbacks."

Analysis

The retail sector is currently encountering significant challenges, reflected in the downward trajectory of key benchmarks such as the retail exchange-traded fund (RTH) and the consumer discretionary fund (XLY), primarily due to concerns regarding consumer health and new trade policies. Costco (COST), however, presents a contrasting picture, having historically defied broader consumer-related pessimism. The stock is presently consolidating sideways at the upper end of its established trading range, a technical posture considered bullish. This positive outlook is further supported by its Moving Average Convergence Divergence (MACD) indicator, which remains on a buy signal. Although money flow and momentum indicators have recently declined, and the stock's relative strength trails the broader market, this could be a consequence of its sideways trading pattern rather than underlying weakness. A pivotal catalyst approaches with Costco's earnings report scheduled for Thursday, which has the potential to drive the stock to new historical highs. TheStreet Pro portfolio maintains a long position in COST, assigning it a "Two" rating, advocating to "stockpile on pullbacks."

Key Decisions for Investors

• Investors should closely monitor Costco's upcoming Thursday earnings report as a primary catalyst that could significantly influence its short-term price movement and potential for reaching new highs.
• Consider accumulating positions in Costco (COST) during any price pullbacks, aligning with TheStreet Pro's guidance, particularly if the earnings report confirms continued fundamental strength.
• While Costco displays company-specific bullish signals, it is prudent to weigh these against its current relative underperformance compared to the broader market and the prevailing negative sentiment in the general retail sector, reassessing relative strength post-earnings.