Shares of The Kroger Co. (KR) sold off more than 4% on Friday after Amazon.com, Inc. (AMZN) announced plans to open "dozens" of grocery stores in major American cities. The initiative will offer "products at lower price points" than wholly owned Whole Foods while cutting into market share at rivals that also include Dow component Walmart Inc. (WMT), Costco Wholesale Corporation (COST), Target Corporation (TGT) and Dollar General Corporation (DG).

Kroger stock fell to a two-month low and rebounded into the weekend, with market players squaring positions ahead of Thursday's fourth quarter earnings, when the supermarket chain is expected to report 52 cents in profit on $28.4 billion in revenues. A 3% year-over-year revenue decline and mixed guidance in December's confessional generated a week-long uptick, followed by a swift decline to a six-month low in the mid-$20s.

Amazon expects to open a Los Angeles store by year end, followed by potential roll-outs in San Francisco, Seattle, Chicago, Washington DC and Philadelphia. The carefully worded description of expected price points attempted to deflect fears that the initiative will cut into Whole Foods sales, but that store's trendy customers are likely to compare costs despite Amazon's efforts to rope off the new chain.

The e-commerce giant also needs to worry about market share with mainstream customers that pay the lowest prices possible to make ends meet. Rivals already fill this demographic to the saturation point, and these folks will be unmoved by lower prices that are still higher than their neighborhood chain or big box store. In addition, Amazon's reputation has been damaged badly in the past year, with a botched headquarters search that has exposed questionable tax breaks and labor practices.

KR Monthly Chart (2000 – 2019)

Monthly technical chart showing the share price performance of The Kroger Co. (KR)
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Kroger stock topped out at a split-adjusted $17.45 in 1999 following a multi-year bull run that started at $1.05 in 1989. That marked the highest high for the next 13 years, ahead of a decline that unfolded through two selling waves into a five-year low at $5.50 in 2002. Buyers returned during the mid-decade bull market, lifting the price into resistance at the .786 Fibonacci sell-off retracement level in the mid-teens in 2007.

A persistent sell-off reached the single digits in 2009 and eased into a basing pattern that held close to the low for more than three years. The stock finally turned higher in 2012, entering a dramatic recovery wave that completed a breakout above the 1999 high in 2013. It posted impressive gains into 2015, topping out at an all-time high at $42.75 in January 2016 and selling off to a three-year low at $20 in 2017. Price action into 2019 has held between the 2015 high and the 2017 low.

KR Weekly Chart (2015 – 2019)

Weekly technical chart showing the share price performance of The Kroger Co. (KR)
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A Fibonacci grid stretched across the downtrend that started in 2015 highlights stubborn resistance at the 50% retracement level in the lower $30s. The stock has failed four attempts to mount that level since February 2017 and has now contracted into a narrow range pattern with support at the closely aligned 50- and 200-day exponential moving averages (EMAs). The .382 retracement of the 2009 into 2015 uptrend cuts through the middle of this pattern, indicating that price action has reached a major inflection point.

A breakdown through the 50% rally retracement at $26 would set off a preliminary sell signal that increases the odds for a decline into the 2017 low near $20, while a breakout above the 50% sell-off retracement would set the stage for an eventual test at the 2015 high. Daily accumulation-distribution readings posted a two-year high in November 2018 and have drifted lower into March 2019, but this unusually loyal sponsorship tilts the odds in favor of a bullish long-term outcome.

The Bottom Line

Kroger and other chains that sell groceries lost ground on Friday after Amazon announced a major initiative that could reduce competitor market share and revenues in coming years.

Disclosure: The author held no positions in aforementioned securities at the time of publication.