4 Ways To Play For Upside In Costco: Bonus Idea
Dragonfly Capital | Jan 23, 2017 08:29AM ET
Here is your Bonus Idea with links to the full Top Ten:
Costco (NASDAQ:COST), started pulling back in December 2015 and found support in February 2016. That move and the following bounce led to a bearish Bat harmonic. It completed in August 2016 and then retraced 88.6% of the pattern before finding support. Since that bottom in November though it has done nothing but move higher. It broke above resistance at 153.50 in December and gapped higher eventually finding resistance under 165. The stock pulled back to its 20 day SMA before reversing higher again. Last week it ended at resistance again, with a RSI rising in the bullish zone and a MACD about to cross up.
There is resistance at 164.50 and the 169.67 followed by a Measured Move to 173. That would be a new all-time high. There is support lower at 160.50 and 159.50 followed by 156.50. Longer term there is a Positive RSI Reversal that gives a target to 173 as well. Short interest is low at 1.7%. The company is expected to report next on March 2nd.
The options chains show February options with biggest open interest to the up side, at 165 and 170 on the call side. There is also open interest at 160 on the put side. Moving to the March 3 expiry, the first beyond the reporting date, shows building open interest above the current price at 170 and 172.50. April options which have had a longer life show the 160 call strike as the biggest open interest.
Costco
Trade Idea 1: Buy the stock on a move over 164.50 with a stop at 161.50.
Trade Idea 2: Buy the stock on a move over 164.50 and add a February 165/160 Put Spread ($2) and sell a March 3 Expiry 170 Covered Call ($1.38 credit).
Trade Idea 3: Buy the March 3 Expiry 160/165 bullish Risk Reversal ($1.20).
Trade Idea 4: Buy the February 24 Expiry 165/170 Call Spread ($1.90) and sell the 160 Puts ($1.62 credit).
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 with the Inauguration and January Options Expiration in the rearview mirror, sees the equity markets holding up very well and remaining strong on the longer timeframe.
Elsewhere look for Gold to consolidate its uptrend or pullback while Crude Oil moves sideways in a range. The US Dollar Index looks better to the downside in the short run while US Treasuries are resuming their move lower. The Shanghai Composite is stuck at 3100 and does not look to change that soon while Emerging Markets look tied in their move higher and ready for a pullback.
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Volatility should remain at abnormally low levels keeping the bias higher for the equity index ETF’s SPY (NYSE:SPY), iShares Russell 2000 (NYSE:IWM) and PowerShares QQQ Trust Series 1 (NASDAQ:QQQ). Their charts show the QQQ remaining the short term leader as it creeps to new all-time highs, while the SPY and IWM consolidate moving sideways in the short run. In the longer timeframe all 3 look strong. Use this information as you prepare for the coming week and trad’em well.
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