Brexit causes pain for Tesco – what’s next?

The supermarket’s share price has been bumbling around, but the sector stands to gain.

Tesco Plc

Many shares appear to have suffered pain from the Brexit decision, with Tesco (LSE:TSCO) a fully paid-up member of the fraternity.

As the chart below highlights, since the 2016 Brexit vote the share price has stagnated, but we're perhaps seeing early signs that things may be about to change, hopefully for the better.

Unfortunately, Tesco is not currently showing early signs of immediate hope, but when we glance at the encompassing Food & Drug Retailers Index, there's a pretty strong impression given for some imminent gains among its members.

Thanks to a revamp of sector codes and data in the middle of March, there's a slight danger of reading the tea leaves incorrectly, but we're hopeful this shall not be the case. Long story short, we can argue for sector gains of around 10% anytime soon.

If we opt to embrace our ‘inner gullible’, we should also advocate longer-term gains of around 25%, taking the sector to highs not seen since 2008.

The long and the short of this particular story is that we suggest keeping an eye on Tesco’s share price.

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Presently trading around 232p, the share need only exceed 237p to regain clear air above the blue line, a downtrend which dates back 10 years. This should prove fairly significant, calculating with the potential of near-term gains in the direction of 242p.

Usually, regaining a position above a prior downtrend will prove important, allowing a share price to blossom quite firmly. In the case of Tesco, only with closure above 242p shall we feel justified in promoting the concept of future gains in the direction of 295p.

Arithmetically, there are plenty of reasons to anticipate some hesitation as the price makes its way up the aisle.

When we look for viable warning signs for things going wrong with Tesco, it appears the share now needs to trade below 218p to cause a slight flutter in our confidence.

A triggering movement such as this threatens reversal towards 190p and hopefully a rebound.

The consequences below such a level are far from pleasant. If opting to take a ‘fire & forget’ long position, somewhere just below 218p would currently make an excellent stop loss level.

Source: Trends and Targets. Past performance is not a guide to future performance

Alistair Strang has led high-profile and 'top secret' software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know 'how it worked' with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea.