Rolls-Royce share price rally is showing signs of exhaustion after forming a risky chart pattern on the daily chart. RR was trading at 1,138p on Monday, down from the year-to-date high of 1,193p. So, will it rise or fall after publishing its results later this week?
Rolls-Royce share price has formed a risky pattern
The daily timeframe chart shows that the Rolls-Royce stock price has been on a strong uptrend in the past few years, mirroring the performance of other top companies in the industry like GE Aerospace and Safran.
This rebound has turned a company, which the current CEO described as a burning machine into one of the top gainers in the FTSE 100 Index.
The daily chart shows that the rally has stalled in the past few months as it has remained inside the narrow channel between the support and resistance levels at $1,087p and 1,193p.
A closer look shows that the stock has formed what resembles a double-top pattern whose neckline is at 1,087p. A double-top is one of the most common bearish reversal patterns in technical analysis.
The stock’s top oscillators like the Relative Strength Index (RSI) and the MACD have also formed a bearish divergence pattern, which often leads to a strong bearish breakout.
Therefore, the most likely scenario is that the stock remains in this range this week. Alternatively, it may experience a sharp retreat to 1,000p because of the double-top pattern.
The bearish Rolls-Royce stock price forecast will become invalid if it moves above the important resistance level at 1,193p, its all-time high. A move to that level will point to more gains, potentially to the resistance level at 1,200p.
Rolls Royce Holdings trading statement ahead
The main catalyst for the Rolls Royce share price this year is the upcoming trading statement, which will come out on Thursday this week.
A trading statement is a brief document that updates the market about a company’s performance in a certain quarter. Rolls-Royce releases that statement to update investors ahead of the substantive half-year results. It also includes the management’s commentary on the trading conditions.
The most recent half-year results were published in July this year. They showed that the company’s business, especially its civil aviation segment, continued thriving as flight hours jumped and demand for spare parts soared.
The management remained optimistic that it would navigate the tariff issue well. Its engine flying hours rose by 8% to 8.1 million, while its large engine deliveries rose to 122.
The defense segment did relatively well, with its revenue rising by 1% to £2.2 billion and its operating profit softening to £342 million.
Also, the power systems revenue rose by 20% to £2.04 billion, with its operating profit soaring to £313 million. This growth happened as it benefited from the demand of artificial intelligence-focused data centers.
Analysts expect that Rolls-Royce’s earnings will be good, but not as solid as during the last half-year results.
In addition to the top-line and bottom-line figures, the company will also make a statement on the small modular reactor business, which it is exploring funding options.
The FT reported that the company was exploring an IPO for the business, which the management rejected, noting that it was in talks with banks on the best options.
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