Rolls Royce share price is in trouble this week. After doubling last week, the shares have dropped in the past three consecutive days. They are now trading at 176p, which is more than 40% below last week’s high of 250p.
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Why RR share price jumped
Rolls Royce shares had their best week in more than three decades last week as investors focused on the company’s measure to boost its balance sheet. The shares also rose after hitting a multi-decade low of 97p, which is an indication that investors were bargain-hunting. Indeed, other fallen angels like BP and Royal Dutch Shell share prices soared last week.
The biggest catalyst, however, was the company’s decision to go to the market and raise more than $6.5 billion. It will raise $2 billion of these funds from its shareholders and the rest through bonds and loans. The fundraising, together with the cost-cutting measures it has announced, will see the company boost its already strained balance sheet.
Still, Rolls Royce is not yet out of the woods. According to CNBC, 40 global airlines have gone out of business this year because of the pandemic. Those that have not yet gone under are living on borrowed time. For example, in the UK, the CEO of British Airways resigned this week and lamented that the business will take years to recover. Similarly, in the United States, there is a likelihood that more airlines will be in trouble without stimulus.
Meanwhile, Rolls Royce share price is in trouble because of the rising number of Covid-19 cases in Europe and around the world. As a major supplier of engines for intercontinental flights, the firm is exposed because these will be the final ones to reopen. As shown below, this perhaps explains why GE share price has outperformed RR.
So, is Rolls Royce Share Price a Buy?
Analysts have been relatively mum about the recent rally of RR share price. The only analysts who have talked about the performance are from Berenberg, who expect that the price could jump to 270p. That is almost a 100p jump from the current level.
However, as mentioned above, Rolls-Royce faces significant challenges in years to come. It will have to adjust to be a relatively smaller engine manufacturer. Also, it should expect to make losses in the foreseeable future.
Rolls Royce technical forecast
The daily chart below shows that Rolls Royce share price has been in a strong downward trend this week. It has moved below the important 25-day exponential moving averages. It has also moved below the middle line of the Donchian channels, which is a sign that bears are prevailing.
Therefore, I expect that the shares will continue falling as bears aim for the next psychological support at 150p. On the flip side, a move above last week’s high of 237p will mean that bulls are prevailing, which will see the shares continue rising.