Rolls-Royce share price flags a rare bullish pattern: is it about to soar?

Rolls-Royce share price has held steady in the past two days, helped by the company’s reassurance that its business was still firing on all cylinders despite the ongoing weakness in its business. RR rose to 1,200p on Monday, up from the month’s low of 1.093p.

Rolls-Royce Holdings helped by its diversification and execution

Rolls-Royce Holdings and other companies in the civil aviation industry are facing major headwinds this year, including the recent collapse of Spirit Airlines, a top player in the low-cost industry.

Jer fuel prices have soared, and traffic in some regions, especially in the Middle East has slowed dramatically amid the ongoing US-Iran war.

Rolls-Royce is exposed to this weakness, especially if the crisis escalates as jet fuel shortages in Europe may affect its operations. A good example of this is Lufthansa, which has slashed 20,000 short-haul flights.

In a statement at its annual general meeting last week, the management maintained that it had started the year well and that it was on track to hit its target, which includes an underlying profit of between £4 billion and £4.2 billion and a free cash flow of between £3.6 billion and £3.8 billion.

The management noted the large engine flying hours rose by 5% to 115% of 2019 levels in the first quarter. It expects that the LFH will be between 115% and 120% of 2019 levels.

These numbers are important because of the company's business model, which includes offering services to airlines using its engines. These companies pay per engine flight hour, meaning that it only makes money when the engine is flying.

Notably, the management noted that there was  a significant recovery in the EFH in the Middle East, with that of the Trent XWB being above the pre-conflict levels. EFH has remained strong in other regions, with the management noting that most of the flight cancellations were in the narrow body segment.

Additionally, Rolls-Royce is seeing strong orders for its engines despite the ongoing challenges in the industry. For example, it received orders for the Trent 1000 XE, which will be on eight Boeing planes in April. The company may also benefit when Trump visits China, where airlines are expected to make orders of over 500 planes.

Additionally, the company has become a major player in the data center industry, where it is providing solutions to companies and utilities. Its backlog in the power sector rose to £7.3 billion. The company is also aiming to become a major player in the Small Modular Reactor industry, where it has started receiving orders.

Rolls-Royce share price technical analysis

RR stock chart | Source: TradingView 

The daily timeframe chart shows that the Rolls-Royce stock price has rebounded in the past few days. This rebound happened after forming a double-bottom pattern at $1,093 and a neckline at 1,322p.

The stock is attempting to move above the 50-day Exponential Moving Average (EMA). Also, the Relative Strength Index (RSI) has turned around and is attempting to cross 50. 

Therefore, the combination of the double-bottom pattern and the rising RSI means the stock will rebound, initially to 1,322p followed by the all-time high of 1,413p. A drop below the key support at 1,093p will invalidate the bullish outlook.