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: Yamana Gold Inc. (NYSE: AUY)
Today’s penny stock pick is the mining company, Yamana Gold Inc. (NYSE: AUY).
Yamana Gold Inc. operates as a precious metal producer. It has gold and silver production, development stage properties, exploration properties, and land positions throughout the Americas, including Canada, Brazil, Chile, and Argentina producer.
Website: www.yamana.com
Latest 10-k report: https://sec.report/Document/0001264089-21-000013/
Analyst Consensus: As per TipRanks analytics, AUY has an average price target of $5.96 based on 9 Wall Street analysts offering 12-month price targets for the company.
Source: TipRanks.com
Recent Analyst Ratings | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Corporate Insiders bought shares worth $137.7K in the last 3 months.
Insiders | Source: TipRanks.com
- The company recently acquired a new property, a low operational cost mine, cleared half their debt, and pays over 3 percent dividend. The company is also expected to increase gold production to over 1 million ounces.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Falling Wedge Pattern: The daily chart shows that the stock has been 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. Once the stock breaks out of the falling wedge pattern, it could move higher.
AUY – Daily Chart
#2 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.
#3 Bullish Stoch: The %K line of the stochastic is above the %D line. This indicates bullishness.
#4 Bullish RSI: The RSI is currently moving higher from oversold levels and is nearing 50. This is a possible bullish sign.
#5 Symmetrical Triangle Pattern: The weekly chart shows that the stock is currently forming a symmetrical triangle pattern, which is marked as purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend. The stock is also trading above the 200-week SMA, indicating that the bulls are slowly gaining control.
AUY – Weekly Chart
#6 Bullish Stoch: In the weekly chart, the %K line of the stochastic is above the %D line and is also moving higher from oversold levels. All these are positive indications.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for AUY is if it closes above the near-term resistance level of $4.55.
Target Prices: Our target prices are $5.20 and $6.00.
Stop Loss: To limit risk, place a stop loss at $4.15. Note that the stop loss is on a closing basis.
Our target potential upside is 14% to 32%.
For a risk of $0.40, our first target reward is $0.65, and the second target reward is $1.45. 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:
- Hedge Funds Decreased Holdings by 4.4M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company was formerly known as Yamana Resources Inc. and changed its name to Yamana Gold Inc. in August 2003.
- It is rumored that world central banks are holding back gold prices. This could adversely impact the company.
- AUY has issued significant additional shares diluting the stock. This resulted in very small increase in the stock price even when gold prices surged. For instance, gold was $1,300 less than two years ago, and now has a floor around $1,750. Yet, Yamana was priced close to where it is today.
- As per the Q2 report, Yamana Gold had a net loss of $94.1 million dollars.
AUY – Q2 Net Loss
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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