DataTrader: Are You Counting on Costco?
There may be no better testament to the tendency of traders to pile into a stock as it nears new long term highs than the stampede of traders jamming the exits to take profits at the slightest sign that the rally may be over.
These are traders who arrive late to the rally, boosting the market to short term overbought extremes, and the traders who stay too long, whose eventual capitulation at fire sale prices helps produce the short term bottoms and subsequent rallies that professional traders take advantage of day after day.
So far, this appears to describe the most recent profit-taking in the market for shares of Costco Wholesale Corp (COST). The stock, which was near all-time highs a few weeks ago, has closed lower for three days in a row. The three-day pullback comes as the tail-end of a sell-off that has seen COST retreat for eight sessions out of the past nine.
This selling has put Costco at its lowest levels in a month, and potential buyers who have been looking for an opportunity to buy the stock as it pulls back are likely to be attracted as COST moves lower.
Having closed in technically oversold territory for six days in a row, the stock’s current retreat is more extreme in some ways than the stock’s previous sell-off in late July. That sell-off, the stock’s last extended stay in oversold territory, anticipated a rally of more than 20% over the following month.
Quantified data and research on stocks like COST is available each evening after the market closes. To learn more, click here.
David Penn is Editor in Chief of TradingMarkets.com