Mapping the Market: Costco has momentum to rally on

Shares in Costco have shot higher by about 20% since late ​September, and the rally may have plenty of fuel for ​further gains, technical analysis suggests.

Click here for a ‌detailed ​technical analysis chart. Technical analysts scrutinize charts of past price data to map out where a stock might go next. When shares are gaining like Costco, chart watchers often use something called Fibonacci projections. ‌This technical analysis tool calculates potential price targets as a percentage of a stock’s recent rise.

In Costco’s case, one important Fibonacci-projected price target is just below $1,100. When charts identify price targets, analysts look for other reasons why a particular level might be important. In this case, $1,100 is a big ‌round number – something market participants often refer to as a psychological level because prices tend to gravitate there. Such levels can also ‌be known as resistance, which is a price that caps gains.

Resistance is important to charting the course of a stock rally, and analysts look for these levels to determine stopping points. The $1,100 level is also significant because it coincides roughly with the all-time high of $1,096.50 that Costco hit in May this year, according to LSEG data.

Further Fibonacci-projected price ⁠targets include $1,152 ​and then $1,238. Once technical analysts expect a ⁠rally, they look for further reasons to bolster – or refute – that view. Measures of volatility and momentum are commonly used for this.

One tool is Bollinger Bands, which measure ⁠a stock’s variance from a moving average to gauge volatility. Another device is the Relative Strength Index, which uses the speed and scale of a stock’s move ​to measure momentum. Moving Average Convergence Divergence, or MACD, is another widely used gauge. MACD uses moving averages to determine whether momentum ⁠is increasing or decreasing.

Currently, all three of these tools are signaling that Costco shares could continue to rise. However, there is always the risk that market developments can turn against ⁠a ​rally. A fall in Costco shares below the $1,012 to $1,014 area would probably negate the bullish setup.

Costco did not respond to a request for comment submitted through its media relations portal. What the chart shows:

(Mapping the Market ⁠is a daily column written ⁠by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute investment advice ‌or trading recommendations. ) (Christopher Romano ‌is a Reuters market analyst. The views expressed are his own. Editing ​by Burton Frierson and David Gaffen)