Rolls-Royce On the Bounce
A bastion of British engineering and a Derby stalwart, RR. has seen its business collapse of late in the post COVID no-fly zones. Many airplane engines are provisioned on a power-by-the-hour basis so if planes aren't flying, RR isn't making money: 80% of its £15.5bn turnover comes from aftermarket service.
RR hit an almost 20 year low of just shy of 100p on Oct 2 coming off a high of over 1200p just 5 years ago. Chart shows strong volume and a 100% increase in 4 trading days to touch 200p before seeing some resistance. The 50 DMA has provided resistance since June 2020 and is currently at 211p.
Given the run up (on very good volume) some profit taking is to be expected with a potential recheck of the 21EMA at 166p.. If the drive north continues, a pullback from 211p is possible but if taken out would clear the way to the 250p area where previous long term support may now convert to overhead resistance. This is a good momentum reversal boosted by a short squeeze and recovering from historical lows so surprises are to be expected.
RR recently announced a rights issue with a 10-for-3 offer to current shareholders as well as a bond issue and loans raising a combined £4bn in capital.
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