Tesco’s uptrend sits at inflection point

In most years, the two months around Christmas is pure retail bonanza. From Black Friday to Pre-Christmas sales to Boxing Day, retailers pump up the ‘feel good’ factor and squeeze every pound of spending from consumers.

But sometimes they can only do so much.

This year, UK retail sales growth from November onwards is sputtering. A much more muted affair. But this downward lurch in spending is not hard to understand.

Budget mishaps, higher inflation (than official data), and lower pay all took a toll on spending. Indeed, retail data last week shows a 0.1% contraction in November, against the general expectation of a 0.4% increase. Deep Black Friday discounts failed to lure shoppers.

Against this challenging macro backdrop, Tesco (TSCO), UK’s largest supermarket, is on the cusp of completing a top formation.

Its share prices has been locked in a cyclical bull trend since 2023; prices gained more than 50% during the period.

But this trend looks increasingly shaky. When a financial trend changes direction, it leaves clues on the chart.

What clues am I seeing that supports this view? The first clue is that big downward dynamic on 11 November. Prices opened at its highest in years (480p) but slumped throughout the session to close at 461p due to significant profit taking. The close was the lowest close in four trading days.

Then, prices tried to fight back in the next 10 days to regain the upward initiative. This failed. Strong resistance emerged at around 460p.

Now, Tesco is struggling to bounce off the 430p support band. This level is a well-established floor dating back to early September.

A break of this floor will confirm Tesco’s uptrend reversal. Watch to lighten some positions when this happens.