Tesco share price bearish divergence points to a pullback

Tesco share price has pulled back in the past few weeks as the recent rally took a breather. It retreated from the all-time high of 445p on September 8 to 433p today. This price is about 43% above the lowest level this year. This article explores why the TSCO stock may drop after forming a bearish divergence pattern.

UK retail sales steady

The Tesco stock price rose slightly on Friday after the Office of National Statistics (ONS) published the latest retail sales data.

This report showed that the country’s retail sales rose slightly in August even as the country continued to experience inflationary risks.

The headline retail sales rose by 0.5% in August from July. This increase was in line with the growth in July and was higher than the median estimate of 0.3%. It translated to an annual increase of 0.7%, also higher than the expected growth of 0.6%.

The report also showed that the retail sales excluding fuel rose by 1.2% on a YoY basis, also higher than the sector median of 1%.

These numbers mean that spending did well during the month despite the substantial inflation in the country. A report released on Wednesday showed that the headline and core inflation numbers remained above the 3.6% level in August this year.

Tesco benefits from higher retail sales

Tesco benefits from the high retail sales in the UK because it is the biggest retailer in the country. As such, higher volumes is an indication that more people are shopping in its stores.

The most recent results showed that Tesco’s business is doing well even as the UK economy remains in a period of stagflation a period that is characterized by high inflation and slow economic growth.

In a note, the company said that its group sales rose by 4.6% in the second quarter to over £16.38 billion. Most of this growth came from the UK business division, whose sales rose by 5.1% to over £12.3 billion.

The Republic of Ireland, Central Europe, and Booker also reported good revenue growth during the quarter.

Most importantly, the company managed to fend off the pressure from Asda, a company that has been cutting prices. Tesco benefits from its large retail presence in the country and the price match that helps to ensure that its products are priced fairly.

As a result, its brand perception in the UK jumped by 65 basis points, while the market share jumped by 44 basis points to 28%. It had 24 consecutive four-week periods of share gains.

The daily timeframe chart shows that the TSCO stock price has pulled back in the past few days. This retreat happened after it formed a double-top pattern at 445p, where it failed to move above this month.

A double-top is one of the most popular bearish reversal patterns in technical analysis. The MACD and the Relative Strength Index have formed bearish reversal patterns.

Therefore, the stock will likely pull back, potentially to the 50-day moving average at 417p and then it will resume the uptrend. More gains will only be confirmed if the stock rises above the double-top point at 445p. A move above that level will point to more gains to 500p