Costco's Sudden Downturn: What's Behind the 2.4% Slide?

Summary
• Costco (COST) plunges 2.44% to $970.33, breaking below its 200-day moving average of $973.52
• Intraday range narrows to $968.91–$989.32 as turnover surges 0.28% to 1.24M shares
• Sector leader Walmart (WMT) tumbles 4.85%, amplifying retail sector jitters
Costco’s sharp intraday reversal has ignited a firestorm in the discount retail sector. With the stock trading 2.44% below its 988.90 open and 2.44% below Friday’s close of 994.57, the move coincides with a broader sector selloff led by Walmart’s 4.85% decline. Technical indicators and options activity suggest a critical juncture as the stock tests key support levels.

Retail Sector Turmoil and Internal Pressures Weigh on Costco
Costco’s 2.44% intraday drop aligns with a broader retail sector correction, as Walmart’s 4.85% decline amplifies investor caution. While no direct company-specific news triggered the move, the stock’s price action reveals a breakdown below critical technical levels. The 200-day moving average at $973.52 and the 30-day SMA of $960.67 now act as immediate resistance. Options data underscores the bearish sentiment: the 2025-08-29 970 call option shows a 76.15% leverage ratio and -59.05% price change, indicating aggressive short-term positioning. The RSI at 73.51 suggests overbought conditions, while the MACD histogram of 3.96 points to waning bullish momentum.

Discount Retail Sector Under Pressure as Walmart Leads the Slide
The discount/wholesale retail sector is experiencing synchronized weakness, with Walmart’s 4.85% decline amplifying sector-wide jitters. Costco’s 2.44% drop, while significant, appears more moderate compared to Walmart’s sharper selloff. This divergence suggests investors are differentiating between the two giants: Costco’s 58.80 P/E ratio remains elevated relative to Walmart’s 32.10, raising valuation concerns. However, Costco’s 52-week high of $1,078.23 provides a buffer against deeper declines, unlike Walmart’s tighter trading range. The sector’s broader challenges—rising input costs and shifting consumer spending—loom large, but Costco’s premium pricing model may offer longer-term resilience.

Options and ETFs in Focus: Navigating Volatility in a Downturn
• RSI: 73.51 (overbought)
• MACD: 5.49 (bullish), Signal: 1.52, Histogram: 3.96
• Bollinger Bands: 917.06–1,007.39 (current price at 970.33 near lower band)
• 200-day MA: 973.52 (below current price)
• Key support/resistance: 962.23–979.57
Costco’s technical profile presents a high-volatility setup. The stock is trading near its 200-day moving average while RSI suggests overbought conditions, creating a potential short-term reversal scenario. The COST20250829C970 and COST20250829C975 stand out for bearish positioning. The 970 call offers 76.15% leverage with a delta of 0.494 and implied volatility of 20.03%, while the 975 call provides 94.18% leverage and a delta of 0.427. Both contracts show strong liquidity (turnover of 368,848 and 193,003) and high gamma (0.0131 and 0.0132), making them responsive to price swings. Under a 5% downside scenario to $921.81, the 970 call would expire worthless, while the 975 call would lose 61.96% of its value. Aggressive short-sellers may consider these calls as volatility plays, but caution is warranted as the stock’s long-term bullish trend remains intact.

Backtest Costco Wholesale Stock Performance
The backtest of a portfolio that experiences an intraday plunge of -2% shows poor performance, with the strategy returning 0.00% and underperforming the benchmark by 83.61%. The maximum drawdown during the backtest period was also 0.00%, indicating that the strategy did not recover from the intraday plunge.

Critical Support Test Looms: Act Now or Miss the Window
Costco’s 2.44% decline has created a pivotal moment for investors. The stock’s proximity to its 200-day moving average and the 962.23 support level (lower Bollinger Band) will determine near-term direction. With Walmart’s 4.85% selloff amplifying sector-wide caution, the discount retail space remains fragile. Technical indicators suggest a potential bounce if the stock holds above 962.23, but a breakdown could trigger a test of the 52-week low at $867.16. Options traders should monitor the 2025-08-29 970/975 call chain for liquidity shifts, while long-term bulls may find value in dips toward the 960.67 30-day SMA. Watch for a sector leader reversal in Walmart or a breakout above 979.57 to signal renewed bullish momentum.