Mea Culpa: I was wrong about the Ocado share price

Ocado (LON: OCDO) share price has gone through a major short squeeze in the past few months. It surged to 960.40p on Thursday, the highest level since August last year. It has jumped by more than 177% from the lowest level in June.

Why is Ocado stock soaring?

I was wrong about Ocado Group. Regular readers are aware that I have been critical about the company for a long time. You can read some of these articles here and here. I am not alonE as other well-known companies like D1 Capital, Blackrock, Kintbury, and Whale Rock have accumulated huge shorts on the stock.

There are three main reasons why Ocado share price has surged recently. First, there are rumours that the company could be acquired by companies like Amazon or by private equity firms. An acquisition would give these firms its technology and access to UK customers.

Second, the shares jumped this week after the company scored £200 million after winning a patent battle with Autostore, a Norwegian company. The patent battle started in 2020, with Autostore suing Ocado for patent infringement. These funds will help to shore Ocado’s balance sheet.

Finally, Ocado share price has jumped because of a short-squeeze. This is a situation where investors buy stocks of highly shorted companies and push their prices higher. It is a process that is mostly common in the United States.

Despite all these, I maintain my bearish view about Ocado. For one, as I wrote before, I don’t think the company will be acquired because of its weak fundamentals. Ocado has a long history of making losses. 

In 2022, its losses widened to over £500 million, forcing the company to stop building new warehouses. The company has lost billions of dollars in the past decade. At the same time, there are lingering tensions between the company and Marks and Spencer (M,&S), its joint venture partner.

Ocado share price forecast

The daily chart shows that the Ocado stock price has staged a strong recovery in the past few months. Along the way, the shares managed to flip the important resistance level at 810p into a support. 

The stock has moved above the 50-day and 100-day moving averages, which is another positive move. However, the Relative Strength Index (RSI) has moved to the overbought level while the Negative Volume Index (NVI) has dropped. 

Therefore, I suspect that the bullish momentum will continue for a while as buyers target 1,000p. In the long term, however, unless an acquisition offer happens, I suspect that the bearish trend will resume.

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