Costco (COST) Stock at $393 in 2021: Technical Crossroads Before Earnings Report

Costco Wholesale Corporation (COST) is set to release its fiscal first-quarter 2021 earnings after the market closes on December 10. Analysts forecast earnings per share (EPS) of $1.93 on revenue of $42.25 billion, which would represent a 12% increase in profits compared to the same period in 2019. Following a strong finish to 2020, with the stock hitting an all-time high of $393.15 at the end of November, investors are closely watching for signs of continued momentum or possible corrections.

Key Highlights

• Costco's Q1 2021 earnings report is scheduled after market close on December 10.
• The stock reached a record high on November 30 and has delivered a 27% return so far this year.
• A disappointing earnings report could trigger an intermediate correction in the stock price.

As the 41st largest company in the S&P 500 by market capitalization, Costco has experienced consistent growth over the past decade. The COVID-19 pandemic boosted its market share significantly during the first quarter as smaller competitors faced operational challenges. This surge has contributed to the retailer's robust revenue and profit figures, supporting its impressive 27% gain in 2021 following a 44% increase in 2019.

Since Pfizer's announcement of successful vaccine trials in November, some investors have been taking profits from pandemic beneficiaries. However, Costco shares are expected to rebound and potentially reach new highs once this profit-taking phase concludes. Notably, Target Corporation (TGT), a key competitor, posted strong quarterly results in mid-November, suggesting that investors remain willing to reward solid performance in the retail sector.

Wall Street sentiment remains overwhelmingly positive for Costco, reflected by a "Strong Buy" consensus rating. Among 19 analyst recommendations, 15 are "Buy" and 4 are "Hold," with no "Sell" ratings. Price targets range from $325 to $435, with the current stock price trading near $20 below the median target of $393. This positioning increases the likelihood of a positive market reaction if Costco exceeds earnings expectations and raises guidance.

Investor Insight

Profit-taking involves selling shares to lock in gains after a significant price increase. While this benefits those selling, it can cause short-term declines that affect other investors.

Costco Stock Technical Analysis (2018 – 2021)

Costco's stock broke above its 2011 high of $60.50, entering a rising channel that persisted until a breakout in 2018. After peaking at $236 in September 2018, the stock briefly pulled back, then resumed its upward trend with new highs in 2019 and early 2020. The onset of the COVID-19 pandemic in March 2020 increased volatility as investors focused on pandemic winners.

Volatility eased in April 2020 as the price formed a symmetrical triangle, leading to a breakout in July that attracted strong buying interest. The stock continued to climb, reaching its all-time high of $393.15 on November 30, before pulling back to test support at the 50-day exponential moving average (EMA). The on-balance volume (OBV) indicator reached a new high in November, resolving a previous bearish divergence between price and volume.

The recent pullback has also touched a trendline dating back to June, creating a pivotal moment ahead of the earnings announcement. Weekly and monthly stochastic oscillators are turning toward sell signals, suggesting the potential for an intermediate correction if a sell-the-news reaction occurs. Nevertheless, current market conditions show minimal selling pressure, and expectations remain for another strong quarterly performance.

Technical Indicator Explanation

The stochastic oscillator measures momentum by comparing a security's closing price to its price range over a specific period. It helps identify overbought or oversold conditions using a scale from 0 to 100, and its sensitivity can be adjusted through time period settings or moving averages.

Summary

Costco's upcoming earnings report on December 10 is a critical event that could trigger volatility. While a sell-the-news reaction might lead to lower prices in the short term, the company's solid fundamentals and positive analyst outlook suggest continued long-term growth potential.

Disclaimer: The author held no positions in the mentioned securities at the time of writing.

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