Sainsbury’s Share Price Sits and Waits. What Next?

Summary:
• Sainsbury's share price has been in a tight range in the past few days as the momentum about its acquisition has waned

Sainsbury’s share price has been in a tight range in the past few days as the momentum about its acquisition has waned. The SBRY share price is also reacting to the strong UK recovery and the ongoing supply shortages in the country. It is trading at 295p, where it has been in the past few weeks.

Why has Sainsbury lagged? 

Sainsbury’s share price rose sharply in September as investors started pricing in a potential bid for the company. This happened as a bidding war of Morrison’s, the third biggest competitor continued. The bidding ended two weeks ago when the company went through an auction. 

At the time, analysts believed that the bidding war could push more foreign investors like Fortress to make a bid for the company. Besides, the company was willing to pay a premium for Morrison’s. While the private equity company might still launch a bid for the company, it has not yet done so. This explains why the share price has been in a tight range recently. 

Sainsbury’s share price has stagnated because of the current energy crisis in the UK and the supply shortages. The company will is being affected by the crisis in several ways. For example, it will need to pay more energy costs in the third and fourth quarters than what it did in the first half of the year. At the same time, the firm is experiencing lost sales as some of its petrol stations lack inventories. 

Meanwhile, the shortage of products has left some of its shelves empty. The situation could worsen as the Brexit situation get worse. The UK has demanded fresh negotiations about the Northern Ireland situation. Still, there are some positive signs. For example, in a statement last week, Tesco said that it was seeing more demand, which pushed it to upgrade its forward guidance. 

Sainsbury’s share price forecast 

The daily chart shows that the Sainsbury’s share price has been in a tight range recently. The stock has found a strong support slightly above the 25-day and 50-day moving averages. 

Another notable thing is that the shares have formed a head and shoulders pattern, which is usually a bearish signal. The neckline of this pattern is at around 280p.

Therefore, there is a likelihood that the SBRY share price will break out lower as because of the head and shoulders pattern. If this happens, the key level to watch is the support at 255p, which was the highest level on January 27.

On the flip side, a move above the key resistance at 300p will invalidate the bearish view.