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: American Virtual Cloud Technologies Inc. (NASDAQ: AVCT)
Today’s penny stock pick is the IT service management company, American Virtual Cloud Technologies Inc. (NASDAQ: AVCT).
American Virtual Cloud Technologies, Inc. provides IT solutions and managed services. It offers managed IT services to a range of clients, including unified communications-as-a-service, directory and messaging, enterprise networking, cybersecurity, collaboration, data center, integration, storage, backup, virtualization, and converged infrastructure.
Website: www.ir.avctechnologies.com
Latest 10-k report: https://sec.report/Document/0001213900-21-018977/
Analyst Consensus: Not Covered By Analysts Recently. However, AVCT was initiated with a ‘Buy’ rating and a $17.00 price target at Loop Capital almost 8 Months Ago.
Potential Catalysts / Reasons for the Hype:
- The company American’s Kandy Communications business unit announced a partnership with consumer engagement platform Braidio.
- Corporate Insiders Bought Shares Worth $1.4M in the Last 3 Months.
Insiders | Source: TipRanks.com
- The company recently projected revenues of its Kandy Business Unit to grow from $14.3 million in 2020 to approximately $18.8 million in 2021 and in excess of $37 million in 2022.
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 purple 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. The stock is also trading above its 50-day SMA, indicating that the bulls are slowly gaining control.
AVCT – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line and ADX line are above the -DI line, and the ADX line has currently started moving higher from below the +DI and -DI lines.
#3 Bullish Stoch: The %K line of the stochastic is above the %D line, indicating bullishness.
#4 Bullish MACD: In the daily chart, the MACD line is above the MACD Signal line, indicating possible bullishness.
#5 Above Support Area: The weekly chart shows that the stock is trading above a support area, which is marked as a pink color dotted line. This is a possible bullish indication.
AVCT – Weekly Chart
#6 Oversold RSI: The RSI is presently moving higher after reaching oversold levels, pointing to the possibility of a strong reversal to upside.
#7 Bullish Stoch: The %K line of the stochastic is above the %D line in the weekly chart as well. It is also moving higher from oversold levels, indicating bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for AVCT is above the price of $2.65.
Target Prices: Our target prices are $4.00 and $5.00.
Stop Loss: To limit risk, place a stop loss below $1.80. Note that the stop loss is on a closing basis.
Our target potential upside is 51% to 89%.
For a risk of $0.85, our first target reward is $1.35, and the second target reward is $2.35. 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:
- AVCT has been a loss-making company.
AVCT – Net Loss
- The company was formerly known as Computex Technology Solutions. Pensare Acquisition Corp. completed business combination with Computex to rename it as AVCT in April 2020.
- Despite reporting increasing losses year-over-year, the company executives are being paid significant compensation.
AVCT – Executive Compensation
- The Company has a substantial amount of indebtedness. As of December 31, 2020, total debt related to notes payable, line of credit draws, and capital leases was $17.6 million, and a promissory note of $0.5 million.
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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