Kroger Co. (KR) is down more than 10% in trading ahead of Thursday's opening bell as traders and investors shift their positions in reaction to the supermarket chain's fourth-quarter earnings miss. Things such as gross margins, operating margins, GAAP earnings and revenue fell short of expectations. I will leave all the fundamental number-crunching, comparisons and guidance to others and just focus on the charts and technical indicators.
In this daily bar chart of KR, below, we can see a large triangle formation from August. Prices traded in a tighter and tighter high/low trading range the past six months. It looks like trading volume (the histogram below the price chart) has been shrinking from September, which is typical for this kind of continuation/consolidation pattern. Prices crossed above and below the 50-day and 200-day moving averages several times, which is also typical with sideways trading pattern.
The daily On-Balance-Volume (OBV) shows a rise from late May to early November, which confirms more aggressive buying, but the OBV line has been flat to down from November. A declining OBV line happens when sellers are more aggressive. The trend-following Moving Average Convergence Divergence (MACD) oscillator has been spending a lot of time below the zero line in sell territory. This indicator was sitting on the zero line ahead of the earnings news and it is likely to fall below the zero line for an outright sell signal.
In this weekly bar chart of KR, below, we get a longer-term bearish view. KR declined from early 2016 to late 2017. Prices rallied into 2018 without much of a base. Notice how rallies have stalled or petered out in the $32 area since early 2018? The 40-week moving average line is pointed up with a positive slope, but in the last three months KR has traded below this indicator and this Friday we are likely to see prices make a weak close below this trend-following tool. The weekly MACD oscillator has been in a take profits sell mode since September and is likely to close below the zero line this week for an outright sell signal.
In this Point and Figure chart of KR, below, we can see a downside price target of $25.95 indicated. Prices could well overshoot this price target here on Thursday. The weekly bar chart (above) shows that the $24-$23 area could provide some support. A trade below $26.46 is a major sell signal in my opinion and could open the way to further losses.
Bottom line strategy: The $27 to $32 price area is likely to become major overhead chart resistance if KR closes below $26.50 here on Thursday. We'll need to wait and see if support develops in the $24-$23 area.
