Chart of the Day: Sainsbury’s

Sainsbury (SBRY): “Challenging Conditions”

The stock market has a vocabulary all of its own; it is one where the famous Great British understatement usually figures strongly. Luckily, so far this has not been undermined by any EU directives as yet. “Challenging conditions” is one of the classics in this respect, with the main problem being that it may be something which refers to a short-term or a long-term issue. The real worry is that this phrase is used when a company is operating in an environment where the solution escapes it. In this case we have the structural matter of discount operators in the space being almost unbeatable. This is especially the case in the aftermath and demise of the famous, “buy one, get one free” sales technique. Just as in the case of the old flag carriers versus no frills airlines, the journey to finding a new battle plan can be a very long one.

As far as the price action of Sainsbury is concerned, there was an initial relief rally, followed by a key reversal to the downside back below 250p. This suggests that at the very least, shares in the supermarket will be marooned near the range floor in the 230p – 240p zone for quite some time. Indeed, the floor of a broadening triangle has its support line projection heading as low as 210p, a target which could be achieved over the next 2-3 months if today sees consolidation below 250p.