Tesco shares offered two textbook trading opportunities for traders today. So long as they were quick, and prepared to look through the gloss of a quarterly trading statement. And take the latest “everything is rosy” management spiel in the context of recent macro data, uncertain Westminster politics and most of all the shares’ technical set-up.

What were the signals to be watchful of?

Tesco technical analysis::

• Tesco shares had already rallied 6% from last Friday’s June lows to this Wednesday’s highs – a big move for a heavyweight UK Index grocer.
• Failure on Wednesday to overcome 2017’s downtrend meant the bulls weren’t bullish enough.
• This offered Bears a chance to pounce, seeing the shares sell-off by 3% yesterday. Not exactly a vote of confidence ahead of a key trading statement.
• Having opened sharply higher today (+3.3%), and spiked north (to +4.3%) this still only matched May highs, before turning south and aggressively retracing within minutes.

 Macro data / Politics:

1. Yesterday’s UK retail Sales data were even weaker than consensus expected
2. The UK domestic situation is uncertain in terms of both politics and economics in light of last week’s election result and looming Brexit negotiations
3. A weak Pound Sterling continues to squeeze UK consumers by way of higher costs for foreign goods.

So despite this morning’s trading statement being bullish at first glance, and initially being well received by financial markets, as always, the past is the past and outlook is king. The shares are now down sharply as investors exhibit concern that the grocer will struggle to sustain its recovery given the murky outlook for both UK politics and the economy.

What trading opportunities were on offer? (to be read in conjunction with chart)

1. Buy the shares last Friday morning (9 Jun) after they had bottomed out. This could have offered 5% upside between then and Wednesday’s highs.
2. Sell the shares short yesterday morning after they opened down, unable on Weds to break 2017’s downtrend. This could have offered 3% downside.
3. Buy the shares yesterday afternoon hoping for a positive reaction to today’s trading update (‘results play’). This could have offered 3% to 4.5% upside in the first two minutes of trading.
4. Sell the shares short this morning after the retracement began – perhaps when they dropped through 184p – to catch the 3% downside to 179p (yesterday’s lows).
5. As I was writing this, another opportunity presented itself when today’s rising lows at 179p were breached, taking the shares from a rising channel and triggering a bearish flag pattern that duly offered a repeat of this morning’s 3-4% sell-off. But you had to be quick.
6. After the pattern was done, bottom pickers were presented with a 2% bounce. From +4.5% to -1% to flat to -4.5% to -3%. What a day for nimble traders!

To stay on top of other such technical set-ups and trading opportunities within the UK 100 get permanent access to our research. Benefit form a host of helpful publications and access to both analysts and traders. You’ll soon understand why, in April, we were voted Best CFD Research Service and why we have held the Best CFD Provider title for nine straight years.

Mike van Dulken, Head of Research, 16 Jun 2017