Rolls-Royce Share Price Forecast: Buy The Dip?
- The Rolls-Royce share price crashed hard last Friday.
- This drop happened after the news about Omicron.
- We explain why the stock is set to bounce back.
The Rolls-Royce (LON: RR) share price collapsed hard on Friday as new risks to global aviation rose. The stock tumbled to a low of 115p, which was the lowest level since September 22. This price was about 20% below the highest level this month.
Rolls Royce Holdings is a major company that is exposed to the aviation industry. This is simply because the company makes most of its money selling and servicing jet engines. Its engines are used by leading companies like Etihad Airlines, Emirates, Lufthansa, and KLM.
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Rolls-Royce generates most of its profits by servicing jet engines that are mandated by law. Therefore, most companies that have the company’s engines turn to it to handle the services. This explains why the number of hours are important to the company.
Therefore, the RR share price crashed hard as investors moved away from companies in the aviation sector. This happened as South Africa confirmed the Omicron variant and countries like the UK, Israel, and Australia announced travel bans. The number of cases rose sharply during the weekend.
In my view, this sell-off is unwarranted as countries are more prepared on how to handle the new cases without resulting to lockdowns. For example, the UK has ruled out any further lockdowns going forward.
Rolls-Royce share price forecast
On the daily chart, we see that the RR share price formed a double-top pattern at 150p this month. This price action is usually a bearish sign. Therefore, the stock declined below the neckline of this pattern at 134p on Friday. It also dropped below the key support at 135p, which was the highest level on December 3rd.
It is also below the 38.2% Fibonacci retracement level. Therefore, I suspect that the Rolls-Royce share price will stage a rebound on Monday as investors assess the impacts of the Omicron variant. This will see it attempt to fill the gap that it created on Friday and retest the resistance at 130p.
Still, I suspect that it will show more volatility this week as countries announce their Covid plans.
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