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Is Amazon a best-buy for the holidays?
News
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News
Asia stocks rise on prospects of Fed easing hikes
News
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Asset Watch

Should you stick to staples and hide out in Costco?

 

Thursday, October 13 2022

Risk-on sentiment evaporated on Oct. 11 after Bank of England (BOE) Governor Andrew Bailey said U.K. pension funds have “three days left” to offload their bond positions. He added, “You’ve got to get this done,” as the reintroduction of QE was meant to be “temporary” and “not prolonged.”

 

With the Oct. 13 release of the U.S. Consumer Price Index (CPI) already increasing investors’ anxiety, Bailey’s comments poured gasoline on the fire. But as the consumer staples sector ended the day positive, is Costco a safe place to hide?

Admittedly, the wholesale giant confronts a conflicting technical backdrop. Supporting the bulls, Costco has hovered near its September 2021 high ($470.49) for thirteen straight days and closed above the key support level on Oct. 11. Likewise, its rising support line drawn from the December 2018 lows provides backup near $460.

In contrast, Costco has formed a bearish head & shoulders pattern. The left and right arcs are the shoulders, while the highest arc in the middle is the head. A breakdown below the neckline ($470) implies a significant downside since the distance between the neck and the head’s peak is more than $140.

However, if Costco can hold the line and invalidate the pattern, improved investor sentiment could ignite further upside. Additionally, with consumer staples often outperforming the S&P 500 during volatile periods, Costco’s defensive characteristics should make the retailer a relative winner in the short term.

So will support hold or is an epic drawdown on the horizon?


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