Every Little Helps, Revisited

 

In our “Every Little Helps…But £250m?” post of late September 2014 we commented on the 12% share price collapse, following the Tesco PLC’s revelation that it had overstated its half-year profits by £250m, over-stating its profits by 25%, going on to analyse the share price via technical analysis to see IF there were any clues to an expected share price collapse, regardless of the perceived eventual news catalyst blamed for the fall.

The conclusion was that while the “bottom line” may not be very good for Tesco, an opportunity appears to be shaping up for a decent bounce in its share-price, perhaps back towards the 265 to 300 pence range from the then 228p, going on to state that, “personally though I would prefer to await a change in the panel indicator to green, or at least to neutral before buying.”

So what happened since that date? (high-lighted by the vertical red line.)

 22 April 2015 Blog 1

As of the close of business yesterday, the Tesco share price, having continued its fall to 156p by earlyDecember, duly bounced to 253p by early April 2015, despite a scrapping of the annual dividend, to just above the 38.2% Fibonacci re-tracement level shown on the updated chart above. Note also that the neutral panel was signalled within days of the low, changing to a green buy about a month later.

Further note, that whilst Tesco has only announced further dreadful trading results this morning, our T/A signal had changed back from buy to neutral in mid-February and to sell a couple of days ago, before the results.

So now where?

Tesco has reported a worse than expected full-year loss of £6.4bn, after £7bn in one-off charges arising from a very difficult 2014, far worse than analysts’ forecasts for the UK’s largest retailer for the year to end-February. The £7bn in impairments included a £4.7bn fixed asset charge, as the group wrote down the value of its property portfolio and trading conditions remain very tough.

 However, as with the September 2014 post we leave the fundamentals to those analysts, preferring to study the charts for guidance:

22 April 2015 Blog 2

Note the following please:

  • After falling out of the black dashed-line trend channel, the share price rose to “kiss” the underside of the channel, before falling away into the sell panel. (See red arrow.)
  • The three momentum indicators have rolled-over, confirming a possible trend change, albeit that as of yesterday the 50-day moving average was still above the 200-day, which is bullish.

In the very short term the price could go either way, but we remind of the potential downside target given last September.

 

 

 

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