May's, released yesterday, was expected to be negative, but the release was even more disappointing than expected. After rising +0.9% in April, the consensus expected a drop to -0.8%, but the pressure was worse than that: consumers cut spending by 1.3% last month.
That figure exemplifies the complexity of the US economy. Just because it's expanding in general doesn't mean that every part is going up all the time, nor does it mean that the growth trajectory is going up in a straight line.
The Commerce Department's breakdown of where spending occurred last month revealed that pandemic-era winners such as Costco Wholesale (NASDAQ:) — where incarcerated consumers bought stock items, housewares and cleaning products in bulk — were no longer COVID- . era darlings.
In May, as violations returned to normal, shoppers began shifting their spending towards leisure and entertainment venues, especially restaurants, bars and services. Technical analysis of Costco's stock trajectory points to the toll the shift in consumer interests is taking on the stock.
After falling below its upward trendline since its mid-December 2018 low, it bounced back above it. However, it has so far failed to peak above the November 30 record, which would extend the uptrend line.
Rather, it is heavily overloaded and forms a pattern similar to a rising triangle which is inherently a bullish triangle. An upward breakout would show demand came out on top, and that could just be the impetus needed to conquer the bearish stronghold at its all-time high.
However, the price falls below the pattern, which could mean that what is forming is a steeply rising H&S top instead. That makes sense, as it develops below the previous high within the uptrend.
Whatever the pattern turns out to be, the direction of the breakout is likely to determine the next move. A drop below the March 5 trough of $307 would complete a downtrend.
The moving averages confirm the pressure points of the graph. The 50 DMA points to the smoothed short term term, while both the 100 and 200 DMA are embracing the long term upward trendline.
Both MACDS and RSI are bearish, each showing a negative difference with the rising price from early April. Either set a new record before going long or drop below the March 5 low to go short.
Average traders would risk a position after the pattern breakout, including a filter of at least 2 days, 2%, to reduce the chance of a fake out and preferably wait for a return move, for lower exposure, if not for further confirmation.
Aggressive traders could wait for a 1% breakout on a closing basis; experienced aggressive traders can now jump in to beat the crowd as long as they know they can only do this with a trading plan.
Here is an example:
Trade sample
Admission: $385
Stop Loss: $390
Risk: $5
Goal: $360
Reward: $25
Risk: Reward Ratio: 1:5
