This $3 Stock Just Broke Out with High Volume

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: Redwire Corporation (NYSE: RDW)

Today’s penny stock pick is the space infrastructure company, Redwire Corporation (NYSE: RDW).

Redwire Corporation develops, manufactures, and sells mission critical space solutions and components for national security, civil, and commercial space markets in the United States, Luxembourg, Germany, South Korea, Poland, and internationally. The company provides various antennas; and advanced sensors and components, which include solar arrays, composite booms, radio frequency antennas, payload adapters, space-qualifies camera systems, and star trackers and sun sensors.

It also sells a proprietary enterprise software suite that enables digital engineering and generation of interactive modeling and simulations of individual components, entire spacecraft, and full constellations in a cloud-based Software as a Service business model. In addition, the company offers on-orbit servicing, assembly, and manufacturing solutions; and low-earth orbit commercialization, digitally engineered spacecraft, and space domain awareness and resiliency technology solutions.

Website:  https://www.redwirespace.com

Latest 10-k report:  https://ir.redwirespace.com/sec-filings/all-sec-filings/content/0001819810-22-000025/rdw-20211231.htm

Analyst Consensus: Not Covered By Wall Street Analysts.

Potential Catalysts / Reasons for the Hype:

  • Corporate Insiders Bought Shares Worth $347.4K in the Last 3 Months. This was also highlighted on Quiver Quant.

    Insiders | Source: TipRanks.com

  • Rumors of upcoming government contracts.

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 with high volume. Once the stock breaks out of the falling wedge pattern, it could move higher.

RDW – 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 as well as 200-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 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.

#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 looks like a good area for the stock to move higher. The stock is also trading above its 50-week SMA, indicating that the bulls are gaining control.

RDW – Weekly Chart

#7 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 RDW is above the price of $4.00.

Target Prices: Our first target is $6.20. If it closes above that level, the second target price is $7.40.

Stop Loss: To limit risk, place a stop loss at $2.80. Note that the stop loss is on a closing basis.

Our target potential upside is 55% to 85%.

For a risk of $1.20, our first target reward is $2.20, and the second target reward is $3.40. 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. Since its inception, the Company has incurred net losses and negative operating cash flows, in addition to other cash uses associated with capital expenditures, costs associated with the Company’s acquisitions, and costs associated with the Merger, among other uses.

    RDW – Consolidated Statements of Operations

  2. The company has ongoing legal proceedings. On December 17, 2021, the Company, CEO, Peter Cannito, and CFO, William Read, were named as defendants in a putative class action complaint filed in the United States District Court for the Middle District of Florida. In the complaint, the plaintiff alleges that the Company and certain of its directors and officers made misleading statements and/or failed to disclose material facts about the Company’s business, operations, and prospects, allegedly in violation of Section 10(b) (and Rule 10b-5 promulgated thereunder) and Section 20(a) of the Securities Exchange Act of 1934.
  3. Despite being a loss-making company, the executives are being paid significant compensation.

    RDW – Executive Compensation

  4. On November 23, 2021, RDW received written notification from the NYSE that the company was not in compliance with an NYSE continued listing standard in Rule 802.01E of the NYSE Listed Company Manual because of failure to timely file the company’s Quarterly Report on Form 10-Q for the period ended September 30, 2021.
  5. On November 5, 2021, the Company was notified of potential accounting issues with a business unit by an employee in connection with his resignation. The Audit Committee results of the investigation confirmed the existence of previously identified internal control deficiencies as well as identified certain additional internal control deficiencies.

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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