This High Risk / High Reward Stock Looks Poised for a Breakout

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: Bitfarms Ltd (NASDAQ: BITF)

Today’s penny stock pick is the global Bitcoin self-mining company, Bitfarms Ltd (NASDAQ: BITF).

Bitfarms Ltd engages in the mining of cryptocurrency coins and tokens in North America. It owns and operates server farms that primarily validate transactions on the Bitcoin Blockchain and earn cryptocurrency from block rewards and transaction fees. The company also provides electrician services to commercial and residential customers in Quebec, Canada. It also undertakes hosting of third-party mining hardware.

Website: https://bitfarms.com

Latest 10-k report:  https://sec.report/Document/0001213900-22-015279/

Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for BITF in the last 3 months, the stock has an average price target of $10.00, which is nearly 237% upside from current levels.

Source: TipRanks.com

Analysts | Source: TipRanks.com

Potential Catalysts / Reasons for the Hype:

  • The uplisting of the company’s common shares to the Toronto Stock Exchange.
  • The company’s fourth quarter of 2021 showed a big jump in revenue from Bitcoin mining.
  • Bitfarms received a $100 million Bitcoin-backed credit line, of which $60 million was drawn. It also received a $32 million equipment financing agreement in February 2022 to help it continue the expansion of its mining operations and increase its share of hash rate on the Bitcoin network.

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.

BITF – Daily Chart

#2 Bullish Stoch:  The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.

#3 Bullish RSI: The RSI is currently moving higher from oversold levels, indicating bullishness.

#4 Fibonacci Support: Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before surging back again. The weekly chart shows that the stock had taken support at the 23.6% Fibonacci support level of the upmove before starting to move higher. This is a possible bullish sign.

BITF – Weekly Chart

#4 Bullish RSI: In the weekly chart as well, the RSI is moving higher from oversold levels, indicating that a reversal may be imminent soon.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, the ideal buy level for BITF is above the price of $3.10.

Target Prices: Our first target is $4.20. If it closes above that level, the second target price is $5.00.

Stop Loss: To limit risk, place a stop loss at $2.50. Note that the stop loss is on a closing basis.

Our target potential upside is 35% to 61%.

For a risk of $0.60, our first target reward is $1.10, and the second target reward is $1.90. 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:

  1. The company has a history of net losses.

    BITF – Consolidated Statements of Comprehensive Losses

  2. The Company has only a limited operating history upon which an evaluation of the Company and its prospects can be based.
  3. Shareholders have been diluted in the past year. To pay its bills, the company has been issuing new shares on the market. During the fourth quarter alone, Bitfarms issued nearly 17.6 million new shares at an average share price of about $6.47, for net proceeds of $110 million.
  4. Ongoing and future regulatory changes or actions may alter the nature of an investment in the Company or restrict the use of cryptocurrencies in a manner that adversely affects the Company’s operations and the value of the coins it holds.

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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