This High Risk / High Reward Stock Just Broke Out

We recently started a series called “Penny Stock of the Day”. These ideas are geared for traders with an extremely high risk appetite.

Our Penny Stock of the Day is chosen by screening for stocks under $5 and then applying technical analysis on the shortlisted set of penny stocks showing unusual volume. When making these trades, please make sure to pay vigilant attention to pricing moves and have a strict stop loss in place to avoid significant losses.

Penny Stock of the Day: Reed’s, Inc. (NASDAQ: REED)

Today’s penny stock pick is the Ginger Beer brand, Reed’s, Inc. (NASDAQ: REED).

Reed’s, Inc. develops, manufactures, and sells natural hand-crafted beverages in the craft specialty foods industry in the United States, Canada, Asia, Europe, Australia, and South America.

Its products include Reed’s craft ginger beers; Virgil’s craft sodas; Ginger Candy; and Virgil’s zero sugar sodas. Reed’s, Inc. sells its products to natural food and gourmet retailers, grocery store chains, mass merchants, club stores, convenience and drug stores, liquor stores, industrial cafeterias, and on-premise bars and restaurants through distributors and independent distributor partners, as well as directly.

Website:  www.drinkreeds.com

Latest 10-k report: https://sec.report/Document/0001493152-21-007217/

Analyst Consensus: As per TipRanks analytics, based on 2 Wall Street analysts offering 12-month price targets for Reed’s in the last 3 months, the company has a ‘Moderate Buy’ rating and an average price target of $1.55, which is a 134.85% Upside from current levels.

Potential Catalysts / Reasons for the Hype:

• Corporate Insiders buying shares worth $153.2K in the last 3 months.
  

  Recent Insider Transactions | Source: TipRanks.com

• The news of the company expanding its services to 3 other chains (Publix, Cvs pharma, WALMART) and defense Commissary agency.

On analyzing the company’s stock charts, there seem to be multiple bullish indications…

Bullish Indications

#1 Falling Wedge Pattern Breakout: The daily chart shows that the stock was forming a falling wedge pattern for the past several weeks. These are marked as pink color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out of the falling wedge pattern with high volume, indicating possible bullishness.

#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI and the ADX lines are above the -DI line, and the ADX line has currently moving higher from below the +DI and -DI lines.

#3 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.

#4 Bullish Stoch: The %K line of the stochastic is above the %D line. It is also moving higher from oversold levels. All these are positive indications.

#5 Above Support Area: The weekly chart shows that the stock is trading above a strong support area, which is marked as a purple color dotted line. This is a possible bullish indication.

#6 Bullish Stoch: In the weekly chart as well, the %K line of the stochastic is above the %D line and is also moving higher from oversold levels. All these are positive indications.

#7 Oversold RSI: The RSI is currently moving higher after reaching oversold levels, indicating possible bullishness.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, the ideal buy level for REED is if it closes above the near-term resistance level. This translates to a price of above $0.71.

Target Prices: Our target prices are $1.10 and 1.80.

Stop Loss: To limit risk, place a stop loss at $0.50. Note that the stop loss is on a closing basis.

Our target potential upside is 55% to 154%.

For a risk of $0.21, our first target reward is $0.39, and the second target reward is $1.09. This is a nearly 1:2 and 1:5 risk-reward trade.

In other words, this trade offers 2x to 5x more potential upside than downside.

Potential Risks / Red Flags:

1. The company has a history of net losses. For the year ended December 31, 2020, the Company recorded a net loss of $10,177,000.
   

   REED – Annual Report – Net Loss

2. There are rumors that the company may file for chapter 11 bankruptcy.
3. Reed’s was served notification by Nasdaq Listing Qualifications Department for non-compliance comply with Listing Rule 5550(a)(2). Reed’s has until February 2022 to get stock above $1 for 10 days in a row.
4. The company was formerly known as Original Beverage Corporation and changed its name to Reed’s, Inc. in 2001.
5. Raptor/Harbor Reeds SPV LLC has sold over 1 million shares since the first of July.
6. Despite reporting losses year after year, the company executives are drawing significant compensation.
   

   REED – Executive Compensation

As you can see, today’s featured penny stock offers big upside potential… but it also comes with a number of risks and red flags. As always, when dealing with penny stocks, we advise caution before entering into such high-risk ventures. Remember to think before you trade… understand the risks… and if you decide to trade, stick to your stop-losses!

Happy Trading!

— Trades of the Day Research Team

READ BEFORE TRADING PENNY STOCKS: The allure of penny stocks lies in their potential to deliver massive gains in a short period of time. However, in exchange for that opportunity, most penny stocks carry tremendous risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.

Unlike regular stocks, the financial condition of most penny stock companies can be extremely difficult to analyze, as the majority of such stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In fact, in the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment. Nevertheless, we do our best to identify short-term trade opportunities in this exciting space because we know some of our readers are looking for high-risk, high-reward ideas. We just urge you to make sure you fully understand the risks before making any of these trades.

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