This High Risk / High Reward Stock Just Broke Out with High Volume

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: Ring Energy Inc. (NYSE: REI)

Today’s penny stock pick is the natural gas liquids company, Ring Energy Inc. (NYSE: REI).

Ring Energy Inc. engages in the acquisition, exploration, development, and production of oil and natural gas in Texas and New Mexico. The exploration and production company primarily sells its oil and natural gas production to end users, marketers, and other purchasers.

Website:  www.ringenergy.com

Latest 10-k report: https://sec.report/Document/0001104659-21-037791/

Analyst Consensus: Not Covered By Analysts

Potential Catalysts / Reasons for the Hype:

  • The Crude oil rallying sharply and the possibility of an upcoming severe oil supply crunch / energy crisis.
  • Rumors of an upcoming sale of Delaware land for premium.
  • The news of insiders buying the stock. Corporate Insiders had bought Shares Worth $5.8 million in the Last 3 Months as per TipRanks.

    Insider Transactions | Source: TipRanks.com

Insider Transactions | Source: TipRanks.com

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

Bullish Indications

#1 Consolidation Area Breakout: The daily chart shows that the stock was trading within a consolidation area for the past several weeks. This is marked in the daily chart as a purple color rectangle. The stock had recently broken out of this consolidation area with a high volume. Once a stock breaks out from a consolidation area, it usually moves higher.

REI – Daily Chart

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

#3 Price above MAs: The stock is currently above its 50-day as well as 200-day SMA, indicating that the bulls are now in control.

#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates possible bullishness.

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

#6 Double Bottom Pattern Breakout: The weekly chart shows that the stock has currently broken out of a double bottom pattern, which is marked in orange color. This is a possible bullish sign.

REI – Weekly Chart

#7 Bullish MACD: In the weekly chart as well, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.

#8 Bullish Stoch: The %K line of the stochastic is currently above the %D line in the weekly chart. This is a possible bullish sign.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, the ideal buy level for REI is above the price of $3.75.

Target Prices: Our target prices are $5.50 and $6.50.

Stop Loss: To limit risk, place a stop loss at $2.75. Note that the stop loss is on a closing basis.

Our target potential upside is 47% to 73%.

For a risk of $1.00, our first target reward is $1.75, and the second target reward is $2.75. This is a nearly 1:2 and 1:3 risk-reward trade.

In other words, this trade offers 2x to 3x more potential upside than downside.

Potential Risks / Red Flags:

  1. The company has had significant losses. For the year ended December 31, 2021, the company’s net loss was $253 million.

    REI – Statement of Operations

  2. The company was formerly known as Transglobal Mining Corp. and changed its name to Ring Energy, Inc. in March 2008.
  3. Despite being a loss-making company, the company executives are drawing good compensation.

    REI – Executive Compensation

  1. Andrews & Springer LLC is investigating potential securities fraud and breach of fiduciary duty claims against Ring Energy, Inc.
  2. The company has entered into a definitive agreement with institutional investors for the purchase and sale of $18 Million of Common Shares, Pre-Funded Warrants, and Common Warrants in a registered direct offering priced at-the-market. This could result in dilution.

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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