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: ContextLogic Inc. (NASDAQ: WISH)
Today’s penny stock pick is the mobile ecommerce company, ContextLogic Inc. (NASDAQ: WISH).
ContextLogic Inc. is an American online e-commerce platform for transactions between sellers and buyers. The company operates Wish, an ecommerce platform that connects users to merchants. It also provides marketplace and logistics services to merchants.
Website: https://www.wish.com
Latest 10-k report: https://ir.wish.com/sec-filings/sec-filing/10-k/0001564590-22-010074
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for WISH in the last 3 months, the stock has an average price target of $0.65.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Bullish comments from Citron Research, calling the stock the “most asymmetrical opportunity” on his radar.
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.
WISH – 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 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 is a possible bullish indication.
WISH – 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 WISH is above the price of $0.90.
Target Prices: Our first target is $1.30. If it closes above that level, the second target price is $1.70.
Stop Loss: To limit risk, place a stop loss at $0.65. Note that the stop loss is on a closing basis.
Our target potential upside is 44% to 89%.
For a risk of $0.25, our first target reward is $0.40, and the second target reward is $0.80. 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. WISH incurred net losses of $361 million, $745 million, and $129 million, for the years ended December 31, 2021, 2020, and 2019, respectively. As of December 31, 2021, the company had an accumulated deficit of approximately $2.5 billion.
WISH – Consolidated Statements of Operations
- Beginning in May 2021, four putative class action lawsuits were filed in the U.S. District Court for the Northern District of California against the Company, its directors, certain of its officers and the underwriters named in its IPO registration statement alleging violations of securities laws based on statements made in its registration statement on Form S-1 filed with the SEC in connection with its IPO and seeking monetary damages.
- Hedge Funds Decreased Holdings by 13.6M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company faces significant competition and its industry is characterized by rapid changes in technology and consumer sentiment. The company’s financial condition and results of operations could be adversely affected if it is unable to compete successfully.
- In November 2021, France’s Directorate General for Competition, Consumer Affairs and Repression of Fraud (DGCCRF) issued an injunction delisting the Wish “App” from Google Play and the Apple App Store, and blocking Wish from appearing in Google, Bing, and Qwant search results on the premise that unsafe products or products of poor quality are available for purchase on Wish. Separately, in late December 2021, authorities in France charged ContextLogic with legal violations relating to the Company’s former policy permitting merchants to use strikethrough pricing in France, the Company’s previous failure to translate into French listings and product details on the Company’s app and website, and the Company’s anti-counterfeiting policies and practices.
- Despite being a loss-making company, the executives are being paid significant compensation.
WISH – Executive Compensation
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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