Tesco stock analysis: Is a long-term uptrend starting?

Charts suggest Tesco could be starting a long-term uptrend.

Tesco supermarket logo on top of store exterior against a moody sky in Kidderminster, UK                                 
Will Tesco stocks break out the long-term downtrend? – Photo: Shutterstock

Tesco reported strong results for the first half of the fiscal year 2021–2022. Group sales (excluding VAT and fuel) increased 3% to £27.3bn (€32.1bn, $37.1bn) from £26.65bn in the same period last year. The company’s profits surged to £1.30bn, up 29.5% from £1bn in the first six months of the previous year.

Following its strong first-half performance, Tesco has raised its adjusted retail operating profit forecast for this financial year to between £2.5bn and £2.6bn.   

Britain’s biggest supermarket chain said it will pay an interim dividend of 3.2p per share and laid out a plan to grow the dividend per share incrementally every year, targeting roughly a payout of about 50% of earnings. The company also announced a share-buyback programme of £500m to be completed by October 2022.

Britain’s supermarkets have been on the radar of private equity players, with Morrisons recently being sold to US private equity group Clayton, Dubilier & Rice (CD&R). Speculations are rife that Sainsbury and Tesco are also candidates for a takeover.

However, while speaking to reporters, Tesco CEO Ken Murphy denied that the share buyback was a defensive move, as Reuters reported. 

Murphy said: “This isn’t defensive by any means, this is completely as far as we’re concerned part of business as usual. This is part of a very clear policy and is the result of the very strong cash flow we’ve generated, and we’ve spoken to shareholders for some time about the possibility of buybacks when our debt ratios and our cash flow permitted.” 

The analyst price target for Tesco, according to Yahoo finance, is 295.23p. Could Tesco’s stock go up on the back of strong results? What do the charts suggest? 

Read our TSCO stock analysis to find out.

Tesco share price technical analysis: weekly chart

Tesco share price weekly chart
Graoph: Currency.com

Tesco’s stock price has been stuck inside a symmetrical triangle pattern since August 2018. This uncertainty resolved to the upside recently, indicating that demand exceeds supply.

The stock has picked up momentum after a successful retest of the breakout level of the triangle. This setup has a pattern target at 321.1p. The stock has since pulled back to the long-term downtrend line where bears may mount a stiff resistance.

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However, if bulls drive the price above the downtrend line, it will suggest the start of a new uptrend. The first stop could be 321.1p; if this level is crossed, the up-move may reach 389p.

Alternatively, if the price reverses direction from the downtrend line, the bears will try to pull the stock back inside the triangle. Such a move will suggest that the recent breakout was a bull trap.

Tesco share price technical analysis: daily chart

Tesco share price daily chart
Tesco share price technical analysis daily chart – Credit: Currency.com

Tesco’s stock price rebounded off the 50-day simple moving average (SMA) on 4 October and soared above the 20-day exponential moving average (EMA) on 6 October. 

The relative strength index (RSI) has jumped into the overbought territory and the moving averages are sloping up, indicating that the path of least resistance is to the upside.

The current up-move in the stock is likely to face resistance at 281p, but if bulls overcome the barrier, the uptrend could continue to the psychological level at 300p.

Any pullback from the current level is likely to find strong support at 263p and then at the 20-day EMA. A break and close below this zone will suggest that the bears are back in the game.

Tesco stock: Buy or sell at these levels?

Tesco’s share price analysis shows the stock has turned positive in the short term and is trying to break out of the long-term downtrend line. The near-term target objective is 281p and then 300p. This positive view will invalidate if the price turns down and plummets below the 20-day EMA.

The views and opinions expressed in the article are those of the author and do not constitute trading advice. Trading and investing involve substantial risks, and you should always do your own research or contact your financial advisor before arriving at a decision. Never invest more than you can afford to lose.

Trade Tesco stock: Tesco shares price

Tesco PLC
Daily change
Low: 2.677
High: 2.711

Further reading

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