Ocado share price has recoiled: is it safe to buy the dip?

Image for Ocado H1 earnings

Ocado (LON: OCDO) share price has erased most of the gains it made earlier this month as demand for the stock eases. The stock plunged to a low of 622p on Monday, significantly lower than the month-to-date high of 942p. It remains about 62% above the lowest level in October.

Ocado Group recovery stalls

Ocado Group is one of the biggest technology companies in the FTSE 100 index. The firm operates two key businesses: Ocado Retail and Ocado Solutions. In its retail business, the company has a joint venture with Marks and Spencer, one of the biggest retailers in the UK.

Ocado Solutions, on the other hand, provides warehouse technology solutions to retailers around the world. Some of the company’s customers are Groupe Casino, Kroger, and AEON.

Ocado share price has been in a strong bearish trend in the past few months for two main reasons. First, in the United States, Kroger has announced that it will merge with Albertsons. The agreement will create a giant American supermarket chain valued at almost $50 billion.

Therefore, Ocado stock price jumped because investors expect that it will be selected to provide its warehouse solutions to the entire group. However, there is a likelihood that the deal will not close because of market concentration in the sector.

Second, Ocado shares rallied after the company clinched its first customer in South Korea. Lotte Shopping, one of the biggest retailers in the country. As part of the agreement, Ocado will build and operate the company’s warehouses. 

Still, it is unclear how the deal will benefit Lotte, which has a vast e-commerce presence. Around 20% of its total sales are currently online. Some analysts expect that the fee structure will be around 4-5% of gross merchandise value.

The next catalyst for the OCDO share price will be the upcoming cash flow statement scheduled for Tuesday this week.

Ocado share price forecast

Ocado share price

The four-hour chart shows that the Ocado stock price has been in a strong bearish trend in the past few days. In this period, the stock has moved below the key support level at 796p, the highest point on September 12. 

The Relative Strength Index (RSI) has dropped below the neutral point of 50 while the price has moved to the Ichimoku cloud level. Therefore, it is risky to buy Ocado since it will continue falling as sellers target the key support level at 500p. A move above the resistance at 675p will invalidate the bearish view. This view is in line with what I wrote in this article.

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Source: https://invezz.com/news/2022/11/21/ocado-share-price-has-recoiled-is-it-safe-to-buy-the-dip/