Supermarket giant The Kroger Co. (KR) saw its shares fall nearly 19% on Thursday after meeting first quarter EPS and revenue estimates but lowering fiscal year 2018 profit guidance, now calling for 0% to 1% growth. The stock took a second hit on Friday morning, following a wave of downgrades that list stiff headwinds due to steep discounting by Wal-Mart Stores, Inc. (WMT) and other big-box retailers as well as online portals that have sliced off grocery market share at a quicker-than-expected pace.

Intense competition has undermined traditional profit venues that include aggressive commodity management, i.e. taking advantage of futures market pricing anomalies that generate higher margins for key staples. Kroger also faces an uphill battle in competing with, Inc. (AMZN), now the nation's third largest food retailer, intensified by Friday's Whole Foods Market, Inc. (WFM) acquisition announcement. Of Kroger's 2,796 storefronts, just 22% were offering online sales at the time of the March 2017 earnings call. (For more, see: Amazon to Buy Whole Foods in $13.7 Billion All-Cash Deal.)

KR Long-Term Chart (1988 – 2017)

The supermarket chain joined the national exchanges just above a buck (after three stock splits) in 1988 and entered a shallow uptrend that peaked at $3.06 in 1991. A narrow consolidation into 1992 gave way to a powerful trend advance that unfolded in a straight line into the 1999 high at $17.45, ahead of a multi-year correction that bottomed out at $5.50 in the fourth quarter of 2002.

Price action in the next 11 years held within the narrow boundaries of the three-year downtrend, with a multi-year uptick into 2007 stalling less than two points below the 1999 peak, while a bear market decline into March 2009 found support about four points above the 2002 low. Volatility dropped off a cliff into the new decade, with the stock grinding sideways in a three-point range that failed to reward long-suffering shareholders.

Kroger stock awoke from its long slumber in 2012, lifting off range support in a positive feedback loop that reached the prior century's high in 2013. It broke out into 2014 and took off in the most productive period since the 1990s, lifting in a strong uptrend that continued into the March 2015 high at $38.87. A shallow decline into August found support in the upper $20s, yielding a December test of the high that attracted aggressive selling interest, carving the next stage of a broad top ahead of a 2017 breakdown. (See also: Kroger Nosedives on Downward Revised Guidance.)

KR Short-Term Chart (2015 - 2017)

A slow-motion decline off range resistance at the 2015 high reached range support in October 2016, yielding a modest bounce that posted a lower high in December. The price drifted back to support in March 2017, completing a head and shoulders topping pattern, and it broke the neckline on heavy volume earlier this week. This selling impulse signals the start of a secular downtrend that could reach the mid-teens in the coming months.

On-balance volume (OBV) topped out in the second half of 2015 and entered an aggressive distribution wave that reached a four-year low in the first quarter of 2017. A bounce into June has now ended, marking aggressive abandonment by institutional and retail shareholders getting out of the way of lower prices. Curiously, the company's 1.59% dividend yield should have eased selling pressure, but it hasn't, adding an additional bearish note to the long-term outlook. (See also: US Grocer Kroger Scrambles Before German Invasion.)

The broad uptrend between 2013 and 2015 should slow or stall downside momentum in coming weeks, with support near $20 likely to end the current sell-off wave. The 200-month EMA is rising slowly toward that price level, adding a significant support layer that should allow the company to catch its breath while considering aggressive steps needed to compete in the digital marketplace.

The Bottom Line

Kroger has broken down from a multi-year top after warning that annual sales may not grow in the current fiscal year. The bearish news follows a near endless string of warnings from a broad variety of brick-and-mortar retailers, signaling an escalation out of traditional sales and into e-commerce. (For related reading, check out: Evaluating Grocery Store Stocks.)

<Disclosure: The author held no positions in the aforementioned stocks at the time of publication.>