The Rolls-Royce (RR) and IAG (IAG) share prices have diverged recently. While the RR share price has bounced back to more than 112p, IAG has been on a downward trend. The two companies have a market cap of more than £9.9 billion and £8.6 billion, respectively. They are also the biggest aviation-related firms in the FTSE 100 index.
Delta variant concerns
The aviation industry has made a strong comeback as evidenced by the recent quarterly and half-year results by some of the leading companies in the sector. Two weeks ago, IAG, the parent of British Airways, published strong results. It also reacted favourably to the decision by the UK to start allowing flights from the US.
And last week, Rolls-Royce Holdings published strong results, helped by both civil aviation, military, and its power business. The company managed to make its first profit during the pandemic, helped by lower costs and asset sales. The increase in flight hours also helped.
Still, there are lingering concerns about the Delta variant. Indeed, the IAG and Rolls-Royce share prices will be in the spotlight after a major warning from Southwest Airlines. In a statement, the company said that it had started seeing higher flight booking cancellations and weak growth because of the Delta variant.
While other airlines have remained muted, there is a possibility that they too are seeing slow growth. Worse, there is an ongoing crisis in China, where the government has banned large gatherings. All these events could have a negative impact on the IAG, Rolls Royce, and other aviation firms.
IAG share price forecast
The daily chart shows that the IAG stock price has been in a strong downward trend in the past few days. The stock has dropped from its highest level this year. It has also formed a descending channel and moved below the 25-day and 50-day exponential moving averages. The stock is also substantially below the key resistance at 240p.
Therefore, with the Covid concerns still around, there is a likelihood that the stock will keep falling as bears target the next key support at 150p. This price is along the lower side of the descending channel. On the flip side, a move above 192p will invalidate the bearish view.
Rolls-Royce share price forecast
On Monday, I wrote a relatively bullish Rolls-Royce stock price forecast. In it, I said that the stock will likely resume the upward trend, helped by the strong aviation fundamentals.
This view still remains. Now, turning to the four-hour chart, we see that the RR share price has formed a V-shaped recovery and is attempting to test the upper side at 113.25. The stock is above the 25-day and 50-day moving averages. Therefore, the shares will likely maintain the bullish trend if bulls manage to move it to the key resistance at 113.26.
Still, we can’t rule out a brief pullback as it forms the handle part of the cup and handle pattern. This will still be a bullish view.