Trading in Costco Wholesale Corporation (NASDAQ: C) is quiet Monday. This comes after the shares lost almost 3% in Friday's trading. A disappointing earnings report drove the move.
Some traders are watching to see if there will be a reversal and move higher soon. This is why it is today's Stock of the Day.
If Costo drops to levels around $885, there is a good chance it finds support. As you can see on the chart below, there was support in March and again in April.
Stocks tend to find support at levels that have been support previously. This is a common occurrence in the market, and it happens because of seller's remorse.
Some of the people who sold around $885 worth of shares in March regretted their decisions after the shares rallied. Some decided to repurchase the shares if they could obtain them at the same price they were sold for.
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When the stock dropped back to this price in April, they placed buy orders, and this created support at the level again.
Now Costco is getting close once more, and the same thing may happen. This is why some traders are anticipating a possible reversal.
The shares are also becoming oversold. This means they are trading below what would be their typical or usual range.
When stocks get oversold, it can draw buyers into the market. They will be expecting a reversal, and their buying could put upward pressure on the shares.
Many successful traders do not try to catch the exact bottom. They know that this is virtually impossible.
Instead, they wait for the reversal to begin before they buy. This could give them a better risk-reward ratio.
The bottom part of the chart is the Moving Average Convergence Divergence (MACD) indicator. If the red and blue lines are below the 0 line, the stock is considered to be oversold.
If the blue line then crosses above the red line, it could signal that the reversal is starting. Twice this year, in March and July, buying at this time was an excellent opportunity.
Traders are watching this because it may be about to happen once again.
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