Tuesday, September 8, 2009

Bookkeeping: Short Costco (COST)

Costco (COST) is actually a company I like but as I was scanning for "breakouts" over the weekend, I noticed a massive spike in the stock price last week. Same store sales came in at -2% rather than the expected -5% (maybe 6%) ; hence the big move. So it was on my radar based on the action late in the week. Then this morning, Morgan Stanley piled on with an upgrade creating another gap up.

It's all starting to remind me of a decade ago when valuations meant nothing. I respect this company but we are now upgrading a mass market retailer at over 20x forward estimates. Granted, Whole Food Markets trades well over this value so it's all relative... it is going to be a very interesting era as we seem to have an economy that doesn't require all the money being printed, hence it will go into blowing asset bubbles, creating valuations that (if the Fed does its job properly) will let us enjoy a repeat of NASDAQ 1999.

But for now with 2 gaps in the chart... I am going to put on half a short position (2.5% stake) in Costco (COST) at $56.60. I'll add the 2nd half on any move to near $60, or below $54. Target $51.

[please note: pure momentum traders will be taking the other side of this trade - they love these type of charts]

Short Coscto in fund and personal account

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