Top Trade Ideas For Week July 20, 2015: Costco
Dragonfly Capital | Jul 20, 2015 07:45AM ET
Here is your Bonus Idea with links to the full Top Ten:
Costco Wholesale (NASDAQ:COST), is where I shop for almost everything. We get fruit, vegetables, meat, bread and even gasoline. It may come in large quantities but that does not seem to matter much. And it is not just me. Everyone shops there. In fact I would go so far as to lay out a theory that Costco is the reason that most suburban people have an SUV, not the children.
The stock of the company had a great run higher that started in August of 2014 after a short pause, up to a peak in March. But then it started a pullback. The price fell in a long orderly channel for nearly 4 months before breaking it to the upside a week ago.
The catalyst may have been a re-connection with the 200 day SMA. It had not seen the 200 day SMA since July 2014 when that run higher started. Or it might have been the RSI hitting oversold territory for the second time in 3 weeks. Whatever the reason it is moving higher now.
And the chart looks promising for the upside to continue. The RSI is now back into the bullish range and rising. The MACD is also rising and the Bollinger Bands® have opened for the move higher. There is a consolidation going on now after that first move up. A break over the top of it would set a target of 155, a new All-Time high.
There is resistance above at 145.25 and 148.25 followed by 150.75 and 152.35 before 154.25. There is also the 100 day SMA overhead. Support lower comes at 142.60 and 140 followed by 137 and 135. Short interest is low at only 1.1% and the company reports earnings next in October.
Looking at the options chains, the weekly Expiry sees large open interest at 144 Friday. Moving out to the August Expiry the 145 and 150 Strikes have big open interest on the Call side with the 140 and 135 Strikes on the Put side.
Costco Wholesale Corporation (NASDAQ:COST)
Trade Idea 1: Buy the stock on a move over 145 with a stop at 142.50.
A straight stock buy.
Trade Idea 2: Buy the stock and add an August 145/135 Put Spread September 150 Covered Call Collar (30 cents).
The collar protects the downside for a month for only 30 cents.
Trade Idea 3: Buy the August 145/150 Call Spread ($1.70).
A defined risk method for trading the stock.
Trade Idea 4: Buy the August 145/150 Call Spread and sell the August 135 Puts ($1.25).
Adds leverage at the prior low.
Get The News You Want
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, heading into next week the thermometer is getting hotter and the so are the equity markets with the QQQ leading the charge.
Elsewhere look for Gold to continue lower along with Crude Oil next week. The US Dollar Index is breaking out higher and US Treasuries may be ready to reverse higher as well. The Shanghai Composite and Emerging Markets are both reversing higher and the coming week could determine if it is Dead Cat Bounces or the real deal.
Volatility looks to remain subdued and with a bias lower build a tailwind behind the equity index ETF’s ARCA:SPY, ARCA:IWM and NASDAQ:QQQ. The QQQ looks very strong as it approaches the all-time highs of 2000 while the SPY is also strong and on the edge of a break out. The IWM looks the weakest as it moves sideways in a new consolidation. Use this information as you prepare for the coming week and trad’em well.
DISCLAIMER: 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.
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