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: Fortuna Silver Mines Inc. (NYSE: FSM)
Today’s penny stock pick is the Canadian public silver mining company, Fortuna Silver Mines Inc. (NYSE: FSM).
Fortuna Silver Mines Inc. engages in the exploration, extraction, and processing of precious and base metal deposits in Latin America. Its principal properties include the Caylloma silver, lead, and zinc mine located in southern Peru; the San Jose silver and gold mine situated in southern Mexico; and the Lindero gold project located in Argentina.
Website: www.fortunasilver.com
Latest 10-k report: https://sec.report/Document/0001104659-21-043910/
Analyst Consensus: As per TipRanks Analytics, based on 4 wall street analysts offering 12-month price targets for FSM in the last 3 months, the stock has an average price target of $6.16, which is a 60% upside from current levels.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company received a permit from the Mexican government for its silver-gold asset, San Jose. The Mexican government has granted the company a 12-year extension of the EIA for San Jose.
- Ryan Thompson, an analyst at BMO Capital, upgraded the stock to outperform from market perform and raised his price target to 7.50 Canadian dollars ($5.82) from CA$5.75.
Analyst Forecasts | Source: TipRanks.com
- Silver has intrinsic value. In the new green economy, silver has significant demand due to its uses in battery operated EVs and solar panels.
- A positive insider sentiment, with Corporate Insiders buying shares worth $200.2K in the last 3 months.
Insiders | Source: TipRanks.com
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 months. These are marked as purple color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock currently looks poised for a breakout from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
FSM – 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 moved 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. 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 23.6% Fibonacci support level of the upmove before moving higher, as seen in the weekly chart. This indicates bullishness.
FSM – Weekly Chart
#6 Bullish RSI: The RSI is currently moving higher after reaching oversold levels. This is a possible bullish sign.
#7 Bullish Stoch: The %K line of the stochastic is above the %D line and is moving higher from oversold levels. This indicates a possible bullish setup.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for FSM is above the price of around $4.40.
Target Prices: Our target prices are $5.10 and $6.00.
Stop Loss: To limit risk, place a stop loss below $4.00. Note that the stop loss is on a closing basis.
Our target potential upside is 16% to 36%.
For a risk of $0.40, our first target reward is $0.70, and the second target reward is $1.60. 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 was formerly known as Fortuna Ventures Inc. and changed its name to Fortuna Silver Mines Inc. in June 2005.
- Hedge Funds Decreased Holdings by 25.6K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company has decreasing net income year-over-year.
FSM – 10k – Net Income
- FSM reported a net income of $0.2 million in the recently completed quarter Q3 2021, which is significantly lower than the $13.1 million that the company reported during the same period last year.
FSM – Net Income Q3
- The company faces political risk, as there are rumors of unrest in Burkina Faso, and a surge in militant activity.
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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