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Where do Ocado and M&S stand after warehouse fire?

With a warehouse fire overshadowing talk of a deal between Ocado and M&S, where will both companies go from here?

Ocado has been hitting the headlines in the wake of perhaps one of the most remarkable weeks in the history of the firm. A secretive deal between Ocado and Marks & Spencer (M&S) pointed towards yet another string to the bow of an automated delivery company which is going from strength to strength. However, it wasn’t long before things turned sour, with the flagship Andover warehouse going up in smoke. With that warehouse representing the latest prototype in the company’s drive towards a fully robotic sorting process.

Markets are clearly showing great interest in both firms, with the warehouse fire taking a toll on Ocado in particular. Will M&S still press ahead with the partnership despite safety worries? Will Ocado lose its shine amid worries that their product will appear less attractive to prospective partners? Either way, the charts provide us with the best idea of how markets are reacting to this recent crisis at Ocado.

Ocado

Ocado shares are turning lower once more this week, following a sharp rebound on Friday and Monday. However, this chart highlights two key factors which could allude to the share price holding up in the coming days.

Firstly, consider the wider trend in place over the past four months. Higher highs, and crucially higher lows seemingly providing us with a pathway back towards the highs of 1161. Certainly, this setback will dent the firm's finances and reputation, yet this could also serve as a welcome wake-up call to improve fire safety at a crucial time for the firm. Better to provide the company with the ability to make amendments to the processes at this single flagship warehouse than to have hundreds of such warehouses worldwide that would have to be amended after such a fire.

The chart remains within an uptrend, with trendline support providing the low of last week, there is a good chance that we will start to stabilise around these levels before a more optimistic outlook comes into play. As such, the weakness seen through the past week looks like a good long-term buying opportunity, with a fall below 730 required to bring about a more bearish wider picture into play.

Marks & Spencer (M&S)

Interestingly, while is it Ocado which suffered the big shock to the system, M&S shares are arguably more at risk of a major turn lower, with the downtrend of the past two years looking likely to persist.

The gains we have seen throughout the start of 2019 have brought us into a deep retracement, yet unless we see a break through the 312 swing high, things could easily take another bearish turn to continue the trend of lower highs and lows.

The four-hour chart highlights the current respect of the 76.4% retracement following on from a bearish break from the recent uptrend.

Given the possibility that this market could start to reverse in order to maintain the downtrend on the weekly chart, this is a very interesting point which could see the bears take hold once more for M&S.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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