Where is the only place a normal person feels good about spending $30 to purchase enough toilet paper to last a year in one visit to a store? Not only do you need an SUV to get the bundle home, you need a small condominium in extra space in your home order to have enough room to store them. Of course, I must be talking about Costco.

Because the current rally has gone so far so fast, a normal market would be ripe for a pullback. As such, I continue to look for some good shorting idea setups that would provide some gains and portfolio protection if/when the broad market takes a breather. Last week’s EFA short idea was stopped out with a small 1.5% loss.

In the daily chart of Costco, COST, below, the $216-$217 level has been very important over the last 6 months and as such would be expected to continue to be. Before COST finally broke below that level in early December, looking left we can see it acted as support 5 previous times. We know that once a level was support, broken it now becomes resistance which is exactly what we see happening. As the shares of Costco have risen off the December 24th bottom it is starting to struggle to continue its move higher the closer it gets to that resistance zone.  Notice also, how this same resistance coincides exactly with where the rising (red) 200 day moving average and falling (green) 50 day moving average meet adding more importance to that level. With price below this confluence of resistances and struggling, I am looking for COST to pull back here.

The best case is it falls, makes a higher low and forms a cup and handle pattern.  This would offer a great long entry for those with investment capital to deploy. Worst case, it falls and retraces the entire move (or more) made since the December bottom. If this were to happen this, too, would present another (even better) long entry. Of course, it will take a much longer time to complete so investors are going to have to be patient. For those short-term traders, taking a short here with a stop just above Tuesday’s 215.5 high offer up another excellent risk reward setup for those that can short and are nimble.