Rolls-Royce shares test support after losing momentum
The positive backdrop for Rolls-Royce's defence business has yet to translate into sustained gains for the stock. Ahead of the company's earnings report, investors are assessing whether new catalysts will be enough to support the ongoing recovery.
The most significant positive development was the UK government's decision to allocate £708 million for the continued development of Future Combat Air System technologies. The project will be led by BAE Systems in partnership with Leonardo UK, MBDA UK, and Rolls-Royce. However, Rolls-Royce's share of the funding has not been disclosed, limiting the news' impact on the company's near-term financial outlook.
In addition, between July 21 and July 22, Rolls-Royce repurchased 2.38 million of its own shares, which will be cancelled. While the buyback provides modest support for the stock, it is part of the company's existing repurchase program rather than a new standalone catalyst.
Failed breakout raises risk of a drop to GBX 1,355
The scenario outlined in the previous analysis has fully played out. Rolls-Royce stock broke above the psychological GBX 1,400 level but failed to sustain the rally and has since entered a corrective phase.
Importantly, the breakout above GBX 1,400 was not accompanied by higher trading volume. This weakens the bullish signal and suggests that the recent recovery remains primarily technical in nature.
The GBX 1,380 level is now the key support to watch. Holding above it would keep the possibility of another test of GBX 1,400 alive. However, the more likely near-term scenario is a pullback toward the next support at GBX 1,355.
Half-year report could set the medium-term direction
A stronger and more sustainable rally will likely require a meaningful fundamental catalyst. That catalyst could come with the company's half-year results on July 30.
The earnings report and management's outlook will determine whether Rolls-Royce can establish itself above GBX 1,400 and set the stock's medium-term direction.
Latest Rolls-Royce News
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