New Trade Idea- COST

I want to thank, believe it or not, one of our newer members who has really taken to 3C much faster than I did, but I had to erase years of Technical Analysis Dogma, in any case he brought COST to me as a possible earnings leak play based on 3C charts, I don't think there's an earnings leak, but I do think sentiment has changed.

Ever notice an earnings season can really stink and the market still loves it? Well I think the market has a different sentiment, the market has nothing to do with value, it's all sentiment and expectations for the future, not what you did in the past-not even the past quarter. This is why a company that beats on earnings and revenues will still sell-off, that's because their Guidance for the next Qtr of Year is less than what Wall St. expected.

COST is a tough one because I think it's in good position to look at shorting it, but it will still probably have volatility over the coming 6-12 months as it never formed a real top, but I still think it's worth trading. To be honest, if I needed to get some groceries, I'd go to Walmart, Target, Publix, etc and just get what I needed in economic times like these, the discount as COST isn't much good if you don't need $20 of olives.

Here are the charts, I could show a lot more, but I won't. This is a trade that should come to us, we don't chase these.

 First since COSt has had such a consistent trend as you can see on this 2-day chart, I wanted to look for changes in character as they lead to changes in trend and I thought I saw recent price getting more parabolic, actually it's quite clear, but I used a LN Channel to demonstrate the "Channel Buster", these always "seem" bullish, but they almost "Always" are a red flag for a failing trend and a warning of a top/reversal/

Volume should climb with price in a healthy trend, it did in COST until the 2009 run to present.

MACD 52/104/9 is also in a negative divergence 

A close up of the same chart above, note the breakout had ZERO volume and it is a "Channel Buster" (bearish). This is a type of head fake move, the accelerated price action draws longs in, but if you look at a lot of tops, the trend ends with a move like this just before a top/reversal sets in-LOOK FOR YOURSELF.

 This is a Quarterly Chart-I always like to look at the long term charts first, most people don't look at them at all, but the market is fractal so what you see on a quarterly chart works on a daily or 30 min or even a 1 min, it's all emotions.

My DeMark inspired Indicator has given 2 sell signals in COST, we are in the second now. Also note price running along the top of the Bollinger Bands, "Walking the Bands", this is very strong behavior, especially in a market index. However changes in character are important, we get a feel for COST on a chart this long, but not details.

This is the first custom indicator I won an award for, my "Trend Channel", I'm not going to go in to everything about it now, but it self adjusts to each asset's own volatility and creates a channel based on Standard deviations and when price moves to a stop of the channel, something important has changed and the trend is almost always over. Be sure to use the Trend Channel in the timeframe you are trading, this is a 7 day showing only 2 stop outs in the trend since 2009, a pretty nifty stop indicator based on objective data, not guesses and great for trend traders.

I also have a custom ATR indicator below, it is 4-day average ATR which is low, but this is a 7-day chart so it's more like a 28 day ATR, the ATR has declined instead of making a higher high as it should have.

 The 3-day Trend Channel holds the entire 2013 trend perfectly, the stop for the long COST for a trend trader would be <$108 on a close.

I'm not showing all charts as to why I'm bearish on COST, just take this 2-day 3C chart-a VERY important timeframe and note how 3C has stuck with the uptrend, confirming it until recently as COST has made a Parabolic move and broken character, you see STRONG distribution of COST in to higher prices-that's how smart money does it.

 The 15 min chart shows this as a likely top, we just need a good tactical entry.

The intraday 3 min shows the top as well as a intraday positive divergence, this may give us the bounce we need to sell short COST in to some strength-it does have earnings I believe tomorrow, but I'd give it  some extra room on the stop and take fewer shares to do that so you give the trade a chance to work in case volatility goes nuts, you can always add to this. I wouldn't use options as the volatility makes them expensive before earnings.

The faster 1 min chart shows the positive divergence intraday more defined, I want to catch COST moving up with the intraday charts going negative in to the move up, that's where I want to enter COST.

Let the trade come to you