We recently started a series called “Penny Stock of the Day”. These ideas are geared towards 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: Houston American Energy Corporation (NYSE: HUSA)
Today’s penny stock pick is the independent energy company, Houston American Energy Corporation (NYSE: HUSA).
Houston American Energy Corporation acquires, explores for, develops, and produces natural gas, crude oil, and condensate. Its oil and gas properties are located primarily in the Texas Permian Basin, the onshore Texas and Louisiana Gulf Coast region, and in the South American country of Colombia. As of December 31, 2020, the company owned interests in four gross wells.
Website: www.houstonamerican.com
Latest 10-k report: https://sec.report/Document/0001493152-21-007599/
Analyst Consensus: Not Covered by Analysts.
Potential Catalysts / Reasons for the Hype:
- The recent surge in oil prices. Analysts at UBS believe that oil prices could bounce back to $125 per barrel this summer because of tight supply due to sanctions/import bans imposed on Russia and high demand, especially with increased post-pandemic traveling.
- The company has no debt.
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 has been 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 from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
HUSA – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line is above the -DI line, and the ADX line is currently moving higher from below the +DI and -DI lines.
#3 Price above MAs: The stock is currently above its 50-day and 200-day SMA, indicating that the bulls have currently gained control.
#4 Bullish RSI: The RSI is above 50 and moving higher, indicating possible bullishness.
#5 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#6 Consolidation Area Breakout: The weekly chart shows that the stock had broken out of a consolidation area. It is currently trading near the breakout level of the consolidation area. This is a possible bullish indication. The stock is also trading above its 50-week and 200-week SMA, indicating that the bulls are firmly in control.
HUSA – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
#8 MACD above Signal Line: In the weekly chart, the MACD (light blue color) is currently above the MACD signal line (orange color). 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 HUSA is above the price of $5.00.
Target Prices: Our first target is $7.00. If it closes above that level, the second target price is $8.50.
Stop Loss: To limit risk, place a stop loss at $3.80. Note that the stop loss is on a closing basis.
Our target potential upside is 40% to 70%.
For a risk of $1.20, our first target reward is $2.00, and the second target reward is $3.50. 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. As of December 31, 2020, the company had an accumulated deficit of $72,021,911.
HUSA – Consolidated Statements of Operations
- Corporate Insiders Sold Shares Worth $1.7M in the Last 3 Months.
Insiders | Source: TipRanks.com
- Despite being a loss-making company, the executives are being paid significant compensation.
HUSA – Executive Compensation
- Crude oil has dropped back to below $100 per barrel after reaching $126.42 per barrel recently. This could result in further decline in HUSA prices.
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.