Trading in Costco Wholesale Corporation COST is quiet on Monday. But this may soon change. A popular trading model has just generated a ‘buy' signal.

A new uptrend may be forming. This is why Costco is our Stock of the Day.

There are many effective and potentially profitable trading methods. These include trading breakouts or reversals. Another method is referred to as ‘trend following'.

Many trend-following strategies utilize analysis of specific prices to determine entry and exit points.

If the recent near-term average closing prices of a stock are higher than the longer-term average closing prices, it is probably trending higher. For example, if the average closing price of the past 10 days is higher than the average price of the past 20 days, the stock is probably going up.

If the short-term price is lower than the long-term price, the stock is generally trending down. But if the short-term price crosses above the longer-term price, there is a good chance the stock has reversed and started to trend higher.

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A moving average crossover model uses these (or other) average prices. The chart below illustrates these dynamics.

The blue line is the average closing price of the previous 10 days. The red line is the average closing price of the previous 20 days.

When the shorter-term blue line is below the longer-term red line, the stock is in a downtrend. When the blue line crosses above the red line, a buy signal is generated.

As you can see on the chart, there were buy signals in January and April. Sell signals followed them in March and June. All four of these signals were accurate.

Over the past few days, the 10-day average price has surpassed the 20-day average price. This could end up being another accurate signal for Costo. It may be the beginning of a new uptrend.

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