- Summary:
- Rolls Royce share price could bounce back by more than 33% in the near term according to my technical analysis due to positive vaccine news
Rolls Royce share price is having a good month. In November alone, the stock has surged by almost 50%, making it one of the best performers in the FTSE 100 index. Yesterday, it was the best-performing stock, having risen by more than 9.9%. It was followed by other travel-related companies like Whitbread, IAG, and Melrose Industries.
Covid vaccine positive for RR
Rolls Royce Holdings generates most of its income from civil aviation. The journey starts when it sells its engines to plane manufacturers like Boeing and Airbus. It then continues when the company gets long-term contracts to service those engines, which is a mandatory thing in most countries.
Therefore, the company has been a major casualty of the Covid pandemic that has decimated the entire travel industry. The number of people travelling internationally has dropped by more than 90% from the same time last year. This has particularly harmed the company because its engines are mostly popular among intercontinental airlines.
As such, Rolls Royce share price has gained recently because of the latest announcement by Covid vaccine developers. Last week, Pfizer and BioNTech announced that their vaccine was 90% safe. This news was followed by a Russian company that said that its Sputnik vaccine was 92% safe. And yesterday, Moderna announced that its vaccine had an efficiency rate of 94%. These were positive news for Rolls Royce and all companies in the travel industry.
To be clear. The Covid pandemic still poses significant risks to Rolls Royce since international travel will not bounce back any time soon. This is partly because of the logistics nightmare of vaccinating all the 7 billion people in the world. For example, the Pfizer vaccine expires just five days after it is opened.
Also, a Covid vaccine will not lead to the immediate demand for jet engines since many airlines are still in trouble.
Still, the vaccine will boost sentiment for Rolls Royce and other companies that have been impacted heavily by the pandemic. As such, many investors are likely to come back and buy the shares, which they see as being undervalued.
The company’s shares will also be boosted by a breakthrough in Brussels this week where UK and EU negotiators are attempting to reach an agreement.
Rolls Royce technical analysis
On the four-hour chart, we see that Rolls Royce share price has been rallying since October, when it fell to a split-adjusted low of 35.38p. It has risen by more than 193% since then. At the current price, the share price is along the 61.8% Fibonacci retracement level. The uptrend is supported by the 25-day and 15-day exponential moving averages and is slightly above the psychological level of 100p.
Therefore, I expect that the price will continue rallying, with the near-term target being at Monday’s high of 137p, which is a 33% upside from the current price.
Rolls Royce share price chart
