The 10-year yield fell to its lowest level since 2017 this week.
Rates in decline are already benefiting one stock, said Todd Gordon, founder of TradingAnalysis.com.
Costco is “a consumer staple that’s responding really well to the declining interest rate environment,” Gordon said Thursday on CNBC’s “Trading Nation.” “As bonds are moving up, markets are starting to favor those dividend payers and those staples.”
While Costco yields roughly a third of the rest of the consumer staples sector, it has far outperformed its peers. The big-box retailer has climbed nearly 20 percent so far this year, its best quarter since 2003 and almost double the gain of the XLP consumer staples ETF.
Its charts also point to continued outperformance, said Gordon, pointing to the Elliott Wave Theory. That technical theory posits that the market moves in distinct phases and is used as a predictor for its next wave.
“We have a good first phase [in early 2018] which is called accumulation, in the Elliott Wave Theory that would be wave one. We have now widespread participation which is the middle trend phase,” he said. “We have a third ongoing trend phase. This is called distribution. This is in the latter stages of a rally.”
The parallel channel formed in this Elliott Wave suggests Costco could break $260 on its way up to $280 before it gets overbought, said Gordon. At the low end of that range, an increase to $260 implies 8 percent upside. It would also mark a record.
Gordon is buying the May 17 250/260 call spread for roughly $1.66 to take advantage of a move higher heading into its earnings report at the end of May. This is a bullish bet that Costco will climb above $260 before the contract expiration.