Friday, 7 September 2007

The COST of a Diamond

How much is a diamond worth these days? Personally, I wouldn't know as I don't indulge myself in jewelry. However, as a trader, a diamond in the charts would be very valuable, and I think I found one in Costco (Nasdaq: COST).

Upon seeing the long term chart of COST, we see that it has been on a steady rise. It went thru some sideways movement last year, yet it still continued the uptrend...until a diamond showed up. Overall, the trend is still intact and the price has not broken through the least not yet. If the price were to follow the motions of a diamond's direction, then we should be seeing this crash through the support and the 3 moving averages.

Normally, diamonds are found at the top of the trend, as in this case, and it reverses the previous trend. So based on the diamond's height, the target would be beyond the moving averages. A few nights ago, some sales numbers came in for COST and it was disappointing to say the least. This caused the price to gap through the support at $59.92. I was targetting a short sell at $58.72. Should this fall further, the target for COST is $51.70. However, it won't be an easy trip to that target. Here's why. The price is trapped in between the 50 & 100MA at $59.61 & $57.02, respectively. Should COST pass the 100MA, it still has to contend with the 200MA at $54.82.
I believe that the momentum has shifted to the downtrend when the stock was being dumped on the gap down. Add to that, the MACD is now showing bearish momentum and is accelerating to the downside. The fast line has just recrossed below the zero line. This doesn't look good for the bulls.
So how now, brown cow? Those who are still long are advised to take profits, if any, or cut their losses, assuming it's still tolerable. As for the shorters, they're just waiting for their payday.

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