Ocado share price is slowly forming a double top pattern

Ocado (LON: OCDO) share price rally has lost momentum in the past few days. After surging to a high of 1,020p on July 27th, the shares dropped by more than 21%. This means that the stock has moved into a bear market.

Ocado fights to gain market share

Ocado Group has been one of the worst-performing companies in the FTSE 100 index this year. It has soared by more than 140% from its lowest level this year. This recovery was driven by rumours that several tech companies, including Amazon, were planning to make a bid for the company.

Ocado Group’s fundamentals have improved modestly this year. Its total revenue rose by 9% to £1.37 billion in the first half of the year. In the same period,  the company’s EBITDA rose to £17 million, helped by its technology solutions.

Despite all this, its loss before tax rose from £204 million to over £212 million. The company also faced the challenge of weakening average basket size, which dropped to £45. At the peak of Covid-19, its basket size jumped to £57.

Ocado has taken several measures to boost its market share in UK’s retail sector. For example, it has expanded its single-day delivery to more cities. At the sam time, it has slashed products of most items in a bid to attract more customers.

Ocado faces several challenges ahead. For example, it is still not clear whether the company will be acquired. I believe that a buyout would be a great way for investors to gain value. 

Also, the company could see margin challenges as petrol prices and interest rates remain at an elevated level. This is happening at a time when the company is cutting prices.

The other challenge is that the company is that the UK economy is not doing well. Inflation remained at a high level, meaning that spending could retreat. Therefore, from a fundamental side, there is a likelihood that the stock will underperform in the near term.

Ocado share price forecast

The daily chart shows that the OCDO stock price has been in a strong bullish trend in the past few months. It has risen from a low of 341.7p on June 6th. It has moved slightly above the key resistance level at 807.8p. 

The shares moved above the 50-day and 100-day exponential moving averages. Most importantly, the stock is forming a double-top pattern at 1,020p. Therefore, in the near term, the shares will likely retest the resistance level at 1,020p. In the long term, the stock will drop and move below the neckline at 711p. A drop below this level will see it move to the support at 700p.