Ocado share price frustrates, reverses technical breakout

Summary:

For a brief moment last week, the Ocado share price appeared ready to fly. However, a 4% loss on Friday has put OCDO back on the path lower.

For a brief moment last week, the Ocado share price appeared ready to fly. However, a 4% loss on Friday has put OCDO back on the path lower. The sharp reversal paused for a moment in muted trade on Monday as the US enjoyed a three-day break. However, the slide resumed on Tuesday. Ocado Group (LON: OCDO) dropped 2.58%, extending further below the 200-day moving average and breaching its 100-day counterpart.

Clearly, this year has provided difficult trading conditions for the grocery delivery solutions provider. The back and forth between economic reopening and lockdown restrictions forced the Ocado share price to gyrate wildly over the last few months. However, the UK’s high vaccination rate has led to the return of the high street and normalising shopping habits. Undoubtedly, Ocado has increased its market share during the pandemic. Nonetheless, the share price has doubled from its March 2020 low, leading many to believe it is overvalued. Analysts at investment bank Barclays (LON: BARC) called OCDO ‘excessively high’ in a recent research note. Furthermore, the bank downgraded Ocado to ‘underweight’ from ‘equal weight’, lowering its 12-month price forecast to 1,600p.

OCDO price Forecast

The daily chart shows towards the end of August, the Ocado share price broke above a descending trend line at 2,031p. The resulting uplift also cleared the significant 200-day moving average at 2,038p. Typically, this is a positive development and often a catalyst for more buying. However, the price failed to advance more than 3% before failing last week.

On Wednesday of last week, the Ocado share price slide below 200 DMA, and by Friday, it was back in a downtrend. Notably, the decline has also forced OCDO below the 100-day average at 1,973, which is now the first resistance level. The Trend resistance and the 200-day follow this.

As long as Ocado remains in the downtrend, the path of least resistance appears to be lower. Although the 50 DMA at 1,930p may offer some initial support, the bears may muster enough momentum to push the price even lower. An obvious target is the lower end of the downtrend at 1,612p, just above Barclay’s 1,600p prediction.

The negative technical outlook remains in place below the 200 DMA at 2,038p. However, if OCDO reclaims this level on a closing basis, the bearish view becomes invalid and suggests a second shot at an upside breakout.