Interactive Investor

Chart of the week: can Rolls-Royce shares almost double from here?

28th March 2022 11:35

John Burford from interactive investor

Shares in the blue-chip engineer spiked higher last week, piquing the interest of technical analyst John Burford. Here are his findings.

Shares in this FTSE 100 engineering giant have certainly not been setting altitude records – unlike their revolutionary all-electric airplane The Spirit of Innovation that has clocked up speeds of more than 600 km/hr over distance. Not only that, it has recorded the fastest climb to 3,000 metres.

Rolls-Royce (LSE:RR.) shares have languished under the weight of the considerable negatives of the global lockdowns that crippled air travel and the large debt load in the new era of rising interest rates. And the weak share performance has reflected these short-term factors.

But has the current low price discounted most or all of the bad news? I believe so and the shares are back on my buy low/sell high list.

Looking longer term, with their fuel-saving gas turbine power gearbox that should make major inroads in the recovering long-haul jet engine market – and their mini nukes nuclear power generators that are now getting government backing – have the shares fully discounted the negatives and are they about to gain some altitude?

Incidentally, their mini nukes’ take up the space of only two football pitches and can provide base load power for up to 500,000 homes – enough for many cities. But the lead time for installation is measured in a few years.

Here is the long-term chart showing the weakness the shares have endured since the heady days of 2013 when they reached a height of 387p. From there, they have descended in three clear mega-waves to the corona crash low of 30p in October 2020 – a staggering loss of 92%, which is when all seemed lost. Of course, that is the ideal time to make investments.

Past performance is not a guide to future performance.

Right away, it is clear that my tramline pair has acted as serious lines of support and resistance since January 2014. Thus, any clear upward break of the upper tramline above 130p would very likely be a major trend-setting event.

Here is the latest activity in more detail:

Past performance is not a guide to future performance.

After testing the upper tramline last year, the shares came back to test the pink major support area at 90p last month which held and, on Friday, the shares jumped by over 15% to confirm the likely path of least resistance is now up. But today (Monday), the shares have dropped back.

But provided the 90p support holds, the shares should move up to the upper tramline around the 125p area. A clear break there should propel them to 150p, with much higher potential to my first major target at around 180p.

John Burford is a freelance contributor and not a direct employee of interactive investor.

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