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: DiDi Global Inc. – ADR (NYSE: DIDI)
Today’s penny stock pick is China’s top ride-hailing company, DiDi Global Inc. – ADR (NYSE: DIDI)
DiDi Global Inc. provides ride hailing and other services in the People’s Republic of China, Brazil, Mexico, and internationally. It offers ride hailing, taxi hailing, chauffeur, hitch, and other forms of shared mobility services, as well as enterprise business ride solutions; auto solutions comprising leasing, refueling, and maintenance and repair services; electric vehicle leasing services; bike and e-bike sharing, intra-city freight, food delivery, and financial services.
Website: https://ir.didiglobal.com/overview/default.aspx
Latest 10-k report: Not Available
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for DIDI in the last 3 months, the stock has an average price target of $6.20, which is nearly 143% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The rallying of Chinese stocks after government officials vowed to boost economic growth and stabilize the markets.
- The company is entering into the EV business and aims to launch its first consumer EVs in 2023.
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.
DIDI – Daily Chart
#2 Bullish RSI: The RSI is moving higher from oversold levels and is currently nearing 50, indicating possible bullishness.
#3 Bullish Stoch: The %K line of the stochastic is above the %D line, and is also moving higher from oversold levels, indicating possible bullishness.
#4 Bullish Candlestick: The weekly chart shows that the stock is currently forming a bullish reversal candlestick, which points to the possibility of an upmove soon.
DIDI – Weekly Chart
#5 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, and is also moving higher from oversold levels, indicating possible bullishness.
#6 Oversold RSI: The weekly chart shows that the RSI is moving higher after reaching oversold levels. This points to the possibility of a reversal.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for DIDI is above the price of $3.90. However, you can purchase half the intended quantity of shares of DIDI above the price of $3.40. These buy levels are marked as green color dotted lines in the charts.
Target Prices: Our first target is $6.00. If it closes above that level, the second target price is $7.50.
Stop Loss: To limit risk, place a stop loss at $2.60 (for entry near $3.90) and $2.40 (for entry near $3.40). Note that the stop loss is on a closing basis.
Our target potential upside is 53% to 121%.
- Entry near $3.40: For a risk of $1.00, our first target reward is $2.60, and the second target reward is $4.10. This is a nearly 1:3 and 1:4 risk-reward trade.
- Entry near $3.90: For a risk of $1.30, our first target reward is $2.10, and the second target reward is $3.60. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Potential Risks / Red Flags:
- DID has been a loss-making company. The latest quarterly report shows increasing net losses.
DIDI – Net Losses – 10Q
- Citing vague cybersecurity and data privacy issues, China’s regulators abruptly forced the country’s app stores to suspend all of DiDi’s apps. This suspension is still on, hindering the company’s ability to gain new users in China. China’s regulators also recently drafted new guidelines that will force DiDi and its competitors to reduce their commissions, provide better wages and benefits for their drivers, and limit their usage of personal data. Those requests could all cause DiDi’s operating losses to soar.
- In December 2021, DiDi said it would delist its shares from the New York Stock Exchange (NYSE) and pursue a new listing in Hong Kong. But earlier this month, DiDi suddenly suspended its plans for a Hong Kong listing. With the U.S. Securities and Exchange Commission (SEC) already planning to delist U.S.-listed foreign stocks, primarily Chinese ones that don’t comply with tighter auditing rules soon, this could result in DIDI’s imminent delisting from the NYSE.
- Hedge Funds Decreased Holdings by 1.3M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company was formerly known as Xiaoju Kuaizhi Inc. and changed its name to DiDi Global Inc. in June 2021.
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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