I got a bit of a jump-scare yesterday afternoon after the market closed and one of my shorts, Costco Warehouse (COST) leaped suddenly higher. We’re not in earnings season, so I was wondering what on Earth was happening. It turns out that endlessly gluttonous Americans, bless ’em, just keep scarfing down Costco wares, and they reported very strong sales from their stores. I figured this position was a goner.
Well, not so fast. As you can see from the chart above, the explosive move after hours eroded overnight, and as I stand here now, an hour into the trading day, COST is actually down. More importantly, it’s approaching what I view as a meaningful support level which, if broken might accelerate the selling. I mean, if greedy consumers can’t prop this pig up, what can?
Longer-term, you can see that rounded tops sometimes mean something, and sometimes they don’t. It’s just the nature of COST as a financial instrument.
I will say, however, that a company valued at 55 times earnings for what is essentially a gargantuan grocery store seems just a bit rich to me, but I’m old-fashioned that way.
