Trade This High Risk / High Reward Stock as it Looks Ready to Move Higher

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: Faraday Future Intelligent Electric Inc. (NASDAQ: FFIE)

Today’s penny stock pick is the American start-up technology company focused on the development of luxury electric vehicles, Faraday Future Intelligent Electric Inc. (NASDAQ: FFIE).

Faraday Future Intelligent Electric Inc. engages in the design, development, manufacture, engineering, sale, and distribution of electric vehicles and related products in the United States and internationally.

Website:  https://www.ff.com

Latest 10-k report:  https://sec.report/Document/0001628280-22-014386/

Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for FFIE in the last 3 months, the stock has an average price target of $10.00, which is nearly 182% upside from current levels.

Source: TipRanks.com

Analysts| Source: TipRanks.com

Potential Catalysts / Reasons for the Hype:

  • The current surge in price is rumored to be caused due to short squeeze of shares. A short squeeze occurs when mass liquidations of short traders take place due to a sudden sharp swing in the price.
  • The overall increase in popularity of electric vehicles.

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 months. 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.

FFIE – 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 MA: The stock is currently above its 50-day SMA, indicating that the bulls have currently gained control.

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

#5 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.

#6 Above Support Area: The weekly chart shows that the stock is currently trading above a support area, which is marked as a pink color dotted line. This is a possible bullish indication.

FFIE – 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 FFIE is above the price of $3.80.

Target Prices: Our first target is $4.60. If it closes above that level, the second target price is $5.70.

Stop Loss: To limit risk, place a stop loss at $3.30. Note that the stop loss is on a closing basis.

Our target potential upside is 21% to 50%.

For a risk of $0.50, our first target reward is $0.80, and the second target reward is $1.90. 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:

  1. The company has a history of net losses. FFIE incurred a net loss of $517 million and $147 million for the years ended December 31, 2021, and 2020, respectively.

    FFIE – Consolidated Statements of Operations (from 10-K)

  2. The EV market is already over crowded and saturated. The company also faces stiff competition from the likes of Tesla in the luxury EV sector.
  3. The company had received notice of potential delisting from Nasdaq after it failed to make quarterly earnings and Form 10-K filing on time.
  4. According to a report by J Capital Research, In January 2021, the company claimed it had 14,000 reservations for the car—until one week after Hindenburg published its findings that Lordstown’s orders were faked. Without explanation, after March 19, FFIE no longer made reference to the number of reservations. In fact, these reservations–78% of which were from a single company—had been converted in 2020 to a note payable earning 8% interest. The company strongly implies that the mystery booker, who was apparently ready to spend well over $1 bln on FFIE cars, maybe an “affiliate.”
  5. Numerous lawsuits hoping to become a class action have been filed against the company claiming deceptions, and J Capital Research contends it’s also being sued by unpaid suppliers, its assets have been frozen in China, and it is being run “behind the scenes” by “China’s best-known securities fraudster.”
  6. Despite being more than eight years in business, FFIE has failed to deliver a car. To date, FF has not started commercial production of its first electric vehicle.
  7. Despite being a loss-making company, the executives are being paid significant compensation.

    FFIE – Executive Compensation (from 10-K)

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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