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: US Well Services Inc. (NASDAQ: USWS)
Today’s penny stock pick is the electric fracking company, US Well Services Inc. (NASDAQ: USWS).
U.S. Well Services, Inc. operates as an oilfield service company in the United States. It provides hydraulic fracturing services to the oil and natural gas exploration, and production companies.
Website: www.uswellservices.com
Latest 10-k report: https://www.sec.gov/ix?doc=/Archives/edgar/data/1670349/000156459021012590/usws-10k_20201231.htm
Analyst Consensus: Not covered by analysts.
Potential Catalysts / Reasons for the Hype:
- Corporate Insiders buying shares worth $456.1K in the last 3 months.
USWS – Insider Transactions | Source: TipRanks.com
- The company declared a Reverse split with an indefinite ratio.
- USWS is in the clean energy sector, has low market cap, and low price. The combination of supporting the energy independence of the USA in a way, that is efficient and as clean as possible is perfect for a Biden play. The current low valuation was caused by the Pandemic, which could reverse soon, as the pandemic is slowly abating.
- Rumors of potential tie-ups with Space-X. USWS is located very close to space x testing site in Texas and they are electric.
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 was forming a falling wedge pattern for the past several weeks. These are marked as pink color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out of the falling wedge pattern with high volume, indicating possible bullishness. The stock is also trading above its 50-day SMA, indicating that the bulls are slowly gaining control.
USWS – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI and the ADX lines are above the -DI line, and the ADX line has currently started moving higher from below the +DI and -DI lines.
#3 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.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#5 Above Support Area: The weekly chart shows that the stock is trading above a strong support area, which is marked as a purple color dotted line. This is a possible bullish indication.
USWS – Weekly Chart
#6 Bullish Stoch: In the weekly chart, the %K line of the stochastic is above the %D line and is also moving higher from oversold levels. All these are positive indications.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for USWS is if it moves above the near-term resistance level of $1.15, and closes above $1.20.
Target Prices: Our target prices are $2.50 and $4.00.
Stop Loss: To limit risk, place a stop loss at $0.50. Note that the stop loss is on a closing basis.
Our target potential upside is 108% to 275%.
For a risk of $0.70, our first target reward is $1.30, and the second target reward is $3.30. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a history of net losses. For the year ended December 31, 2020, the Company recorded a net loss of $246.7 million. This is more than double the $116.15 million net loss for 2019.
USWS – Consolidated Statement of Operations
- In spite of reporting losses year-over-year, the company executives are drawing significant compensation.
USWS – Executive compensation
- The company had received notices from Nasdaq. On April 21, 2020, the company received a notice from Nasdaq for non-compliance with the $1.00 minimum bid price requirement for continued listing on Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”). On August 14, 2020, USWS was given another notice (the “Second Notice”) from Nasdaq.
- The Company was named a defendant in a case filed on January 14, 2019, in the Superior Court of the State of Delaware styled Smart Sand, Inc. v. U.S. Well Services LLC, C.A. 19C-01-144 PRW.
- The Company is involved in various pending or potential legal actions in the ordinary course of business.
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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