Zak Mir on Supermarkets’ Sorrow

It is ironic that in the run-up to the alleged exit for the UK from the EU, a look at the supermarket sector reminds us of how, even though our federalist friends in Brussels interfered with many aspects of Great British life, they left many of the rip-off/cartel aspects well alone. The TV license and road tax being just a couple.

The stranglehold that the supermarkets have on food suppliers has been and remains one of the uglier aspects of business in this country. At the same time, for the customer in the aisle, it is very often the case of only those possessing the mental arithmetic skills of Einstein can often work out whether they are indeed bagging themselves a 3 for the price of 2 bargain or not.

Tesco

While dwelling on such matters there is the technical picture of leading plays such as Tesco (TSCO) to take a look at. What is clear over recent months is the way that the momentum on the daily chart remains to the downside, with the only real issue going into the summer being whether, in the wake of the extremely negative news flow surrounding the company, the price action has now managed to reflect the fundamentals.

I would venture to suggest that there is at least modest support from the former April floor just below £2.80,  but that in such situations it is normally best to wait on a momentum trigger that proves the sustainability of a reversal. This would ideally take the form of an end of day close above the 20 day moving average – currently at £2.90. This is an event that could lead Tesco shares to retest May resistance at £3.20 intraday over the subsequent 2 to 4 weeks after the 20 day line is broken. However, at this stage such a target would really appear to be the best case scenario for the bulls given how sickly this daily chart still appears to be.

Morrisons

Given how similar the Sainsburys (SBRY) chart is to that of Tesco at the moment, it appears wise to move on towards Morrisons (MRW), if only on the basis that here we have what appears to be a clear-cut charting picture. In recent months this has taken the form of a relatively non-volatile meltdown for the shares within a descending price channel in place since October. The risk now is that while there is no end of day close back above the 20 day moving average at 190p, and particularly with the latest break of 52 week support at £1.84, Morrisons shares may need to hit the 2013 support line below £1.70 during July, before any lasting turnaround can get underway.

Ocado

The stand out of the past couple of years is the way that even as the traditional supermarkets have been on the back foot fundamentally, the market is still happy to give the benefit of the doubt to the young online pretender, Ocado (OCDO). Nevertheless, it has been a rocky ride, as the decline from the best levels of the year above 600p in March to under 300p in May illustrates.

The position currently appears to be that of a positive consolidation above the 50 day moving average at £3.48. The hope is that at least while there is no end of day close back below the 50 day line we should see at least an intermediate return towards the 200 day moving average level, as high as £4.34, over the next 4 to 6 weeks.

CLICK THE IMAGE BELOW TO GET ZAK’S TOP 5 CURRENCY PICKS FOR 2H 2014