Rolls-Royce’s share price is in a bear market, a trend that accelerated after its top competitors published their earnings. The stock plunged to 1,160p on Friday before stabilizing at 1,220p today, and technicals suggest further downside over time.
Rolls-Royce share price technicals point to more downside
On the charts, we see that the RR stock price has been in a strong sell-off in the past few months. It dropped from a high of 1,585p in August to a low of 1,159p this month. This retreat happened after the stock formed a head-and-shoulders pattern, a common bearish sign in technical analysis.
The stock has dropped below the 50-day and 200-day moving averages and the Major S/R pivot point of the Murrey Math Lines tool. Moving below that level confirmed that bears have prevailed. It has also remained below the Supertrend and Ichimoku cloud indicators.
Therefore, the stock will likely continue falling, potentially to the strong, pivot, reverse level of the Murrey Math Lines tool at 1,125p. A move below that level will point to more downside towards the support level of 1,000p.
RR stock chart | Source: TradingView
GE Aerospace and Safran earnings
The ongoing Rolls-Royce stock weakness has coincided with that of other companies in the industry. GE Aerospace has slumped by 26% from its highest point this year, a trend that continued after publishing the recent earnings.
Safran stock also dropped to 271 euros, its lowest level since May 18th this year. It has slumped by 26% from the year-to-date high. RTX, a company that owns Pratt & Whitney, has also fallen by over 12% from its peak.
Safran and GE Aerospace stocks dropped because, while its earnings reports were strong, their guidance were a bit weaker. GE said that its earnings per share will be between $1.87 and $1.97, well lower than the expected $2.04. It also flagged higher costs and warned that its airline clients were cutting capacity.
Safran, on the other hand, the company flagged the challenges in the aftermarket as companies slash their trips because of the rising costs.
These factors may also affect Rolls-Royce’s business since it is in the same business. A cut in trips would have an immediate impact on its business since it makes most of its money in the civil aviation industry. In addition to selling engines, the company also offers services to airlines through long-term contracts.
A key risk that the company faces is that the US-Iran war could resume in the coming weeks, pushing oil prices higher. Already, data compiled by IATA shows that the weekly average price jumped to $196.70, up by 6.6% from a month earlier. During this Iran war, we have seen that Rolls-Royce has always reacted to rising jet fuel prices.
Another risk is that the Iran war could push Iran to bomb airports in the Middle East, as it did earlier this year. Bombing airports like in Dubai, Saudi Arabia, and Qatar, a move that will affect the civil aviation industry. Such a move will have an immediate impact on Rolls-Royce’s business since it counts companies like Turkish, Emirates, and EgyptAir as clients.
The next key catalyst for Rolls-Royce shares will be its earnings report that comes out on November 12. These earnings will provide more hints on how the war is impacting its business.
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