Costco (COST) last hit a new all-time high on Feb. 14, a few days before the S & P 500 peaked on Feb. 20. From that high to Tuesday's intraday low, COST has dropped over 14%, compared to the S & P's 10% decline. From both viewpoints, COST has done worse than the market. However, technically speaking, COST has held up better. It has pulled back to a key support zone that has attracted dip buyers since late 2023. Importantly, COST has not undercut its January low or its 200-day moving average — unlike the S & P 500 , which pierced its January low last Thursday and closed below the 200-day on Monday. However, the decline has been harsh enough to trigger COST's first oversold 14-day RSI reading since January 2 — which, notably, marked a key trading low. Each of the biggest drawdowns since October '23 pushed the RSI into the low 30s, and each time, those levels led to successful buying opportunities. So, COST now is short-term oversold in a long-term uptrend. Of course, COST is not alone. Many other stocks now have gotten hit hard over the last three weeks but still are considerably higher than they were two years ago. The big question, then, is what happens if this dip only produces a small bounce (or no bounce at all)? Troubling pattern to watch out for COST, like the broader market, will bounce at some point. But if that bounce is quickly faded, it could result in a lower high — a key technical development. If this happens soon, the chart could begin to take the shape of a major topping pattern. This isn't a prediction, but structurally, it would resemble a bearish head & shoulders formation. Seeing a pattern of this magnitude emerge—especially as COST potentially tests its 200-day moving average — would be an ominous signal, particularly for a stock that has been a perennial leader. The last time COST broke below its 200-DMA after an extended period above it was May 2022 — right in the middle of a sharp two-month downturn. While that decline was painful for COST holders, the stock bottomed in mid-May, five months before the S & P 500 ultimately found its own low in October 2022. COST then flirted with reclaiming its 200-DMA for another 12 months before finally breaking above it for good. Ultimately, COST's 200-DMA breakdown in 2022 signaled a shift from a steady uptrend to a volatile, wide trading range. The silver lining was that even though COST didn't reclaim its all-time, 2022 highs until December 2023, short-term oversold conditions still led to solid buying opportunities along the way. However, traders had to be nimble, as rallies were quickly faded. Bottom line: Buying short-term weakness near key support has historically offered favorable risk-reward set-ups — and that could continue, whether or not COST returns to new highs anytime soon. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
