FTSE 100
Rolls Royce share price is up by more than 8% today, becoming the best-performing FTSE 100 component. It is trading at 114.53p, which is also 200% above its year-to-date low of 33.75p.
In the past few months, tens of companies have been on a race to develop a Covid-19 vaccine. Some of these companies include AstraZeneca, Pfizer, Novavax, and GlaxoSmithKline, among others. Recently, some of these companies have revealed that their vaccines are more than 90% effective and are now waiting for authorisation by the regulators.
A vaccine will be a good thing for most UK companies because it will mean more travel and less shutdowns. Rolls Royce will be the key beneficiary for all of this. Others are Whitbread, British Airways, Meggitt, and Intercontinental Hotels.
Indeed, the potential vaccine is the main reason why Rolls Royce share price has been rallying. That’s because, with a vaccine, the travel industry will bounce back again. As a result, airlines will start ordering new planes again.
However, this process will take between 3 to 5 years considering that many airlines are already cash-strapped. Others have already gone out of business. The ray of hope offered by the vaccine has pushed investors to move back to the embattled company.
Some analysts believe that RR will emerge from the pandemic a leaner and better company. For one, its balance sheet is relatively strong because of its recent fundraising. Also, the management has already made significant cash-savings decisions, plant closures, asset sales, and layoffs. So, is Rolls Royce stock a buy at the current price?
On the daily chart, we see that Rolls Royce share price has bounced back after falling to a split-adjusted low of 36.75p. In the past few months, the stock has managed to move above the 23.6% Fibonacci retracement level. Notably, the price has also managed to move above the 200-day moving average.
If the trend continues, a golden cross – where the 50-day EMA crosses the 200-day EMA – will soon happen. Therefore, in the near term, I suspect that the bullish trend will continue, with the next target being the 50% retracement at 190p, which is ~65% above the current price. However, a move below the 50-day EMA at 80p will invalidate this trend.
Read my previous article arguing that RR shares had a 33% upside. (The stock has gone up by 23% since then).
