Time to stock up on Tesco?

TESCO has just broken out of a text-book technical analysis charting pattern, a 'flag', pointing toward more gains in the coming weeks.

Shares in Tesco, the UK's leading and most ambitious food retailer, have continued to make solid headway this year. The stock has been supported by both technical trends and more recently by brokers Merrill Lynch and Morgan Stanley both issuing 'buy' notes.

However, many investors were becoming nervous sitting on gains of over 50% this year, rightly wondering when to take profits.

The last two days have lifted those concerns with a perfect trend formation known as a 'flag'.

Looking back at the charts, Tesco has risen within a very clear upward trend and is now above the important 226p to 230p region, which is a key horizontal support level on long-term charts.

The shares breached this key level with a sharp upward movement, the 'flag pole', then entering a sideways consolidation period – the ?flag‘. On Wednesday the price broke up through the 'flag' alerting Investors and Traders that the continuation of the upward trend is set to continue.

Looking ahead, Tesco shares should now rise initially to 263p and possibly as high as 270p. Profit takers will then produce a further sideways consolidation period where fresh analysis will be needed.

On a cautious note, a signal that the upward trend is not going to continue is if shares fall below 238p in the next few days. Below 238p, support will come from the previous key horizontal level between 226p and 230p, and only a break below this level will really show that the stock has more losses to come.

Stockwatch is written by William Akerman of Quantigma - a firm specialising in tools for technical analysis. It is regulated by the Financial Services Authority***. For more, go to www.quantigma.com