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: 22nd Century Group Inc. (NASDAQ: XXII)
Today’s penny stock pick is the plant biotechnology company, 22nd Century Group Inc. (NASDAQ: XXII).
22nd Century Group Inc. develops plant-based solutions for the life science, consumer product, and pharmaceutical markets. It develops very low nicotine content tobacco and cigarette products under the Moonlight and Moonlight Menthol names; and SPECTRUM research cigarettes for use in independent clinical studies.
22nd Century Group, Inc. has collaboration with Keygene N.V. to develop hemp/cannabis plants for exceptional cannabinoid profiles and other superior agronomic traits for medical, therapeutic, and agricultural uses, as well as other applications.
Website: www.xxiicentury.com
Latest 10-k report: https://sec.report/Document/0001558370-21-002771/
Analyst Consensus: As per TipRanks Analytics, based on 1 wall street analyst offering 12-month price targets for XXII in the last 3 months, the stock has an average rating of ‘Moderate Buy’.
Source: TipRanks.com
Analyst Forecasts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The U.S. Food and Drug Administration (FDA) authorized the company’s VLN cigarette as a modified risk tobacco product (MRTP). The VLN products promise a 95% reduction in nicotine exposure.
- Corporate Insiders Bought Shares Worth $7.6K in the Last 3 Months.
Insiders | Source: TipRanks.com
- Rumors that the company would soon be bought out by big tobacco.
- 22nd Century has received regulatory authorization to start advertising its cigarettes as low in nicotine.
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 months. 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 with huge volume. Once a stock breaks out of the falling wedge pattern, it typically moves higher.
XXII – 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 started to move 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 38.2% Fibonacci support level of the upmove before moving higher and closing above 50% Fibonacci support level, as seen in the weekly chart. This indicates bullishness.
XXII – Weekly Chart
#6 Bullish RSI: The RSI is currently moving higher after reaching oversold levels and is currently above 50. 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 XXII is above the price of around $3.40.
Target Prices: Our target prices are $4.50 and $5.60.
Stop Loss: To limit risk, place a stop loss below $2.70. Note that the stop loss is on a closing basis.
Our target potential upside is 32% to 65%.
For a risk of $0.70, our first target reward is $1.10, and the second target reward is $2.20. 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:
- The company has a history of net losses.
XXII – Net Losses
- Despite being a loss-making company, the executives are being paid significant compensation.
XXII – Executive Compensation
- There are competitive products on the market such as electric smokes.
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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