When the air finally starts coming out of the high-flying tech sector, that capital rarely just sits in cash. Instead, we see a classic sector rotation where institutional money flows into the boring, reliable corners of the market, such as Consumer Staples (XLP) and Healthcare (XLV). Costco (COST) is an absolute heavyweight in the XLP sector, making it a prime candidate to catch this rotational inflow. In my book, Mean Reversion Trading, I frequently discuss the importance of technical indicators to time entries. However, for today's specific setup, I am putting the oscillators aside. We are not using MACD, DMI or RSI. Instead, we are keeping things incredibly simple and relying strictly on the traditional, structural concepts of support and resistance. As you can see in the nine-month chart below, COST has taken a dip and is actively testing a historically significant support zone right around the $950 level. If you look back at the left side of the chart, this exact $950 line acted as a heavy ceiling of resistance in the past. Once price finally broke through it, that old resistance flipped into a reliable support floor, which is exactly where the stock found its footing and initiated the current bounce. To play this support bounce, I am targeting the 950/955 bull call spread with a July 24th expiration. This trade structure allows us to participate in the recovery while strictly capping our downside risk. With COST currently trading at approximately $951, I plan to bracket the current price action by buying the $950 In-The-Money call just below the current price and simultaneously selling the $955 out-of-the-money call right above it. If COST happens to gap up and is trading at $956 by the time you look at the chain, the underlying logic remains identical. You simply wrap your strikes around that new price and construct a 955/960 spread instead. The goal is always to sandwich the live price. The trade setup: COST 950-955 bull call spread Here is my exact trade setup: Buy $950 call, Jul 24th expiry Sell $955 call, Jul 24th expiry Contracts: 1 Cost: $250 Potential Profit: $250 —Nshant Pant Founder: https://tradewithmaya.com/ Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: None All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its 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 CONSTITUTE 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.
<small>Source: CNBC</small>
