NEW DIRECTIONAL PUT PLAYS

Costco Wholesale - COST - close 55.09 change +0.27 stop 57.25

Company Description:
Costco Wholesale Corporation operates membership warehouses that offer its members low prices on a limited selection of branded and selected private-label products in a range of merchandise categories. It buys the majority of its merchandise directly from manufacturers and route it to a cross-docking consolidation point (depot) or directly to its warehouses. The Company's depots receive container-based shipments from manufacturers and reallocate these goods for shipment to its individual warehouses. The Company's warehouse format averages approximately 143,000 square feet. Its warehouses operate on a seven-day, 69-hour week. It carries an average of approximately 3,800 active stock keeping units (SKUs) per warehouse in its core warehouse business. Many consumable products are offered for sale in case, carton or multiple-pack quantities only.

Target(s): 53.80, 53.00, 52.25
Key Support/Resistance Areas: 56.80, 55.60, 54.25, 53.40, 51.50
Time Frame: 1 week

Why We Like It:
COST has broken through key support/resistance areas at $56.80 and $55.60 and is below all of its major moving averages which are declining. The stock is rallying to test these areas from below and I suggest readers using a trigger of $55.80 to enter short positions on any further strength COST exhibits in the coming days. This area is near the most recent downtrend line. We'll use a tight stop at $57.25 which is just above the 50-day and 20-day SMA's, the recent downtrend line, and the congestion area overhead. COST has a large gap to be filled down near the $52 level which is near our most aggressive target and could happen if weakness reappears in the broader market. NOTE: September options were just recently released so the open interest is less than other months.

Suggested Position: September $55.00 PUTS, current ask $1.77, estimated ask at entry $1.40

Annotated chart:

Entry on July xx
Earnings 10/7/10 (unconfirmed)
Average Daily Volume: 3.76 million
Listed on July 20, 2010