Interactive Investor

Chart of the week: will Rolls-Royce shares go nuclear?

31st August 2021 10:07

John Burford from interactive investor

Our charts expert considers the share price movements of the long-struggling, famous engine maker.

Until recently, Rolls-Royce (LSE:RR.) has greatly disappointed investors to put it extremely mildly. And then, the pandemic hit. 

But with the global lockdowns now easing and air travel getting up off the floor in fits and starts as the traffic lights start to change, the shares have recovered from the appalling bargain basement 32p low set in September last year.

But aviation is not the only string to its bow. It is far ahead in the development of small-scale nuclear modular electricity generators and is staring to deliver on orders. The potential is massive.

But here is the very sad chart since the millennium:

Past performance is not a guide to future performance.

That 32p low is actually the very same price last seen in 2003. And that sets up a likely double bottom (a very bullish pattern). 

That is point 1. Point 2 is the form of the decline off the £3.90 all-time high (ATH) set in 2014, which is a clear three down a-b-c. That is a corrective pattern to the main trend (up).

The rally off the wave 'c' low has been quite sharp taking the shares to the recent £1.16 – a gain of 260% off the low. In fact, it has been a major leader of the FTSE rally in recent weeks. But is there scope for further progress?

I have a zone of resistance in the £1.65 area and with momentum now behind the shares, I expect that target to be reached. But that is pretty solid resistance and a pullback would not be unexpected.

If that zone can be negotiated, my next target is the £2.40 region, with higher potential.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.

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