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: Electrameccanica Vehicles Corp (NASDAQ: SOLO)
Today’s penny stock pick is the automobile company, Electrameccanica Vehicles Corp (NASDAQ: SOLO).
Electrameccanica Vehicles Corp develops, manufactures, and sells electric vehicles in Canada. The company operates in two segments, Electric Vehicles, and Custom Build Vehicles. Its flagship product is the SOLO, a single seat vehicle. The company is also developing Tofino, an all-electric two-seater roadster. It also develops and manufactures custom built vehicles.
Website: www.electrameccanica.com
Latest 10-k report: https://sec.report/Document/0001104659-21-040303/
Analyst Consensus: Based on one Wall Street analyst offering 12-month price targets for SOLO in the last 3 months, the stock has an average price target of $12.25 which is a 233.79% upside from current levels.
Source: TipRanks.com
Recent Analyst Ratings | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The news that SOLO would attend Specialty Equipment Market Association (SEMA) show in Las Vegas. SEMA is considered to be one of the biggest and best car shows in the world, especially for new innovative vehicles.
- Rumors that the first infrastructure bill would be passing 500,000 new charging stations.
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 orange 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, indicating possible bullishness.
SOLO – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line is above the -DI line, and the ADX line has started to move higher from below the +DI and -DI lines.
#3 Price above MA: The stock is currently above the 50-day SMA, indicating that the bulls have currently gained control.
#4 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.
#5 Fibonacci Support: Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before surging back again. The stock had taken support at the 23.60% Fibonacci support level of the upmove before moving higher, as seen in the weekly chart, indicating bullishness.
SOLO – Weekly Chart
#6 Bullish RSI: The RSI is currently moving higher after reaching oversold levels and is now near 50. 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 SOLO is above the price of $4.75. However, you can purchase half the intended quantity of shares of SOLO above the price of $4.00.
Target Prices: Our target prices are $6.00 and $7.50.
Stop Loss: To limit risk, place a stop loss at $4.10 (for entry near $4.75) and $3.00 (for entry near $4.00). Note that the stop loss is on a closing basis.
Our target potential upside is 26% to 88%.
- Entry near $4.75: For a risk of $0.65, our first target reward is $1.25, and the second target reward is $2.75. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry near $4.00: For a risk of $1.00, our first target reward is $2.00, and the second target reward is $3.50. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Potential Risks / Red Flags:
- The company has incurred a net loss and comprehensive loss of $63,046,905 and $58,832,999, respectively, during the year ended December 31, 2020, and a net loss and comprehensive loss of $23,212,698 and $22,314,225, respectively, during the year ended December 31, 2019.
SOLO – Consolidated Statements of Comprehensive Loss
- The company has a negative insider confidence signal. Corporate Insiders had sold shares worth $4.6M in the last 3 months.
SOLO – Insider Transactions
- The company has been promising to be in mass production very soon for over 2 years but was unable to deliver yet.
- Despite reporting losses year over year, the company executives are drawing good compensation.
SOLO – Executive Compensation
- The stock faces stiff competition from other EV makers like Tesla and Ford. There are also risk factors like rising costs to produce the SOLO EV, and potential share dilution from future offerings to raise capital.
- The company’s flagship vehicle SOLO is a single seater, which means it can only accommodate one passenger at a time. Many consumers would not prefer this car if they need to transport multiple people at once.
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.
This is the #1 Stock to Buy for the AI Tidal Wave [sponsor]Marc Chaikin warned people about NVDA before its 2023 bull run - now he's naming his next pick or the AI tidal wave. Learn more here.