Supermarket share prices provide potential haven amid market selloff
Supermarkets could provide a rare area of optimism in an otherwise pessimistic market environment.
Restrictions on movement raises demand
The supermarket sector has started to separate from the pack this week, with public perception shifting as the aisles begin to empty.
Boris Johnson’s move to restrict movement for those with pre-existing conditions and those over 70 years old has started to make a tangible impact upon public behavior, as stockpiling takes hold ahead of a potential wider draconian set to measures to limit the transmission of the coronavirus.
The impact to businesses of a wider shutdown is likely to be crippling, with the prospect of ongoing costs and zero income raising fears over a potential economic collapse that could permeate and persist further and longer than many would have imagined just a month ago.
However, for investors, there is a desire to find those companies that could benefit from this period as havens such as gold fail to provide any shelter from the global selloff.
The supermarket sector appears to offer that shelter, with sky-high demand for food and pharmacy items expected to see significant outperformance for the months ahead. Lets take a look at some of the top names in the sector.
Ocado share price: where next?
Ocado, the online retailer, has been enjoying an incredible few years, with the stock currently 536% up from the lows seen in the Q4 2017.
Their expansion has provided another route to growth aside from simply competing on the domestic front, negating much of the fear associated with investing in such a competitive sector. This uptrend looks set to continue apace, with the rally seen this week taking us into a brief record high.
That signals an end to the consolidation seen throughout the past year, with further upside likely from here. Any short-term downside simply looks to be a buying opportunity, with further gains likely to take us back into fresh highs before long.
A break below the £9.95 level would be required to negate this current bullish outlook.
Tesco share price: where next?
Less famed for its deliveries, Tesco has underperformed Ocado this month, with the stock only starting to regain ground this week.
However, while the limelight is less focused on Tesco, the company remains heavily depressed compared with historical valuations. The past four-years has seen the stock climb as it attempts to recovery from some heavy losses in the years since the 2008 financial crisis.
With the recent pullback taking us into the lower boundary of a standard deviation channel, there is a good chance we will see further upside come into play from here.
That channel support is also joined by the £2.08 level, which provides us with a clear threshold that price must remain above to maintain this bullish view. Given this recent sell-off, it would make sense to expect the bulls to start coming back into play from here.
J Sainsbury share price: where next?
Sainsbury's has its own advantage in the battle for supremacy, with their ownership of Argos ensuring that their ability to stay open throughout a shutdown allows the sale of a whole spectrum of household goods that their competitors cannot offer.
The long-term picture for this stock highlights a sharp rise from trendline support this week, with the previous selloff having taken us into multi-year lows, and a critical area of support.
This is a stark contract to the fortunes of Ocado, which has only recently seen record highs established. Given the respect of this long-term trendline, this looks like a good bottom for the time being, with further gains likely to play out as we move forward.
A break through the £2.36 level provides confirmation of this move, yetthis current level looks a good area for longs without necessitatinga break through resistance. This bullish outlook holds unless we see a break below £1.71 support.
WM Morrison share price: where next?
Shares in Morrisons have been on the slide over the past 18 months, with the stock falling into a three-year low this week.
However, we are now starting to see the stock pick-up momentum, with price rising back towards the £2.07 resistance level.
A break through the point would negate the recent downtrend, pointing towards a bullish resurgence from here. That appears likely, with the bulls likely to gain the upper hand as investors start to move into the sector.
As such, a break through £2.07 would provide confirmation of a bullish breakout, with a decline back below the recent low of £1.57 required to negate this view.
Time will be a key factor
This crisis could come to the benefit of the supermarket sector, with any further tightening of movement driving stockpiling. Restaurant demand looks certain to suffer throughout this crisis, with home cooking expected to spike.
With that in mind, the size of this boost for the supermarket sector is going to be a factor of how long this health crisis continues for. Long-term restrictions on movement would likely lengthen any such upside for the sector, while a swift return to normality would likely bring any such surge to an end.
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