Rolls-Royce's share price has entered a bear market, with the decline accelerating after key competitors released their latest earnings. The stock fell to 1,160p on Friday before recovering to 1,220p, but technical indicators suggest further weakness may be on the horizon.
Technical Picture Points to More Downside
On the charts, Rolls-Royce has been in a sustained sell-off over recent months, dropping from an August high of 1,585p to a low of 1,159p this month. This retreat followed the formation of a head-and-shoulders pattern, a widely watched bearish signal. The stock has now slipped below its 50-day and 200-day moving averages, as well as the Major S/R pivot point on the Murrey Math Lines tool, confirming that sellers have taken control. It also remains below the Supertrend and Ichimoku cloud indicators, reinforcing the bearish outlook.
Given these technicals, the stock could continue its descent toward the strong pivot reverse level at 1,125p. A break below that would open the door to further losses, potentially targeting the 1,000p support level.
Rival Earnings Highlight Sector Risks
The weakness in Rolls-Royce shares mirrors broader challenges across the aviation industry. GE Aerospace has dropped 26% from its yearly high, a slide that continued after its recent earnings report. Safran's stock also fell to 271 euros, its lowest level since May, marking a 26% decline from its year-to-date peak. RTX, the parent of Pratt & Whitney, has lost over 12% from its high.
While both GE Aerospace and Safran reported strong earnings, their forward guidance disappointed investors. GE forecast earnings per share between $1.87 and $1.97, below the expected $2.04, and flagged higher costs while warning that airline clients are cutting capacity. Safran highlighted challenges in the aftermarket as airlines reduce trips due to rising expenses.
These factors are likely to impact Rolls-Royce as well, given its similar business model. The company generates a significant portion of its revenue from civil aviation, not only through engine sales but also via long-term service contracts with airlines. A reduction in flight activity would directly affect its revenue streams.
Geopolitical and Oil Price Risks
One key risk is the potential resumption of the US-Iran conflict, which could push oil prices higher. Data from IATA shows the weekly average jet fuel price has already climbed to $196.70, up 6.6% from a month earlier. Historically, Rolls-Royce shares have reacted negatively to rising fuel costs, as they squeeze airline margins and reduce travel demand.
Additionally, an escalation could lead to attacks on Middle Eastern airports, as seen earlier this year. Such events would disrupt civil aviation and directly affect Rolls-Royce, which counts carriers like Turkish Airlines, Emirates, and EgyptAir among its clients.
Upcoming Earnings as Key Catalyst
The next major test for Rolls-Royce will be its earnings report, scheduled for November 12. Investors will look for clues on how the geopolitical situation and industry headwinds are affecting the company's performance. The results could either stabilize the stock or accelerate its decline, depending on management's outlook.
This article is for informational purposes only and does not constitute financial advice.
