Rolls-Royce: what the shares might do in the months ahead
11th August 2022 08:36
by Alistair Strang from interactive investor
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Independent analyst Alistair Strang tells us what his charts say about the FTSE 100 engineering firm.
It was interesting to see Rolls-Royce's name pop up last week in numerous reports from the US. Modular nuclear power stations have been given the go-ahead in the US, with Rolls-Royce (LSE:RR.) named as a major contributor to the new technology. These plants, described as being the size of a football pitch, are designed to be dropped into suitable sites, producing sufficient power for a city.
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The company, used to an income stream produced when their jet engines are turning, was obviously hurt during the Covid pandemic. But the daily contrails are again decorating the sky above Scotland's west coast, suggesting airlines are again flying, once again paying rent to Rolls-Royce for their fabulous jet power.
The modular nuclear solution being accepted in the US is surely brilliant news, the thinking doubtless to follow into the rest of the world with Rolls-Royce at the heart of the matter. But their share price remains rubbish!
If we indulge our favourite party trick of drawing lines on charts, this miserable state of affairs could continue until the end of August, when Rolls-Royce reaches a point where some action is almost demanded by the market. But if we err on the side of common sense, visually there's a chance that things may not “kick off” until the end of 2022.
Past performance is not a guide to future performance.
All this presents a bit of a problem, thanks to the big picture now demanding the price bottom around 60p, maybe even 55p if the market is having a bad day. Maybe it is the case that until the market is forced to transcend a major trend line, it will continue to behave badly.
If this (somewhat silly) theory is correct, movements during the last month gently suggest the share price has until around 20 August to hit bottom or it will hit the first in a series of trend lines demanding action. This being the case, we will not be aghast to witness Rolls-Royce enact a final act of self-immolation just before 20 August.
However, if we chose to believe that the company has a future, such a state of affairs almost doesn't matter (as long as the price bounces), the share price only needing exceed 94p by the start of September to now allegedly trigger recovery to an initial 102p with secondary, if bettered, at 110p.
This secondary is fairly important, due to the potential of it exceeding blue on the chart around the end of this year and provoking some game-changing behaviour towards 142p, a price level where we will require to once again plug in our tea leaves.
Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.
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