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: Equinox Gold Corp (NYSEAMERICAN: EQX)
Today’s penny stock pick is the gold mining company, Equinox Gold Corp (NYSEAMERICAN: EQX).
Equinox Gold Corp engages in the operation, acquisition, exploration, and development of mineral properties. The company primarily explores for gold and silver deposits. Its properties include the Aurizona gold mine located in Maranhão State; the RDM gold mine located in Minas Gerais State; and Fazenda gold mine and the Santa Luz gold mine located in Bahia State, Brazil. The company also hold interests in the Mesquite gold mine and the Castle Mountain property situated in California, the United States; and the Los Filos Gold Mine located in Guerrero State, Mexico. In addition, it holds a 60% interest in the Greenstone project located in Ontario, Canada.
Latest 10-k report: https://sec.report/Document/0001628280-22-007230/
Analyst Consensus: As per TipRanks Analytics, based on 8 Wall Street analysts offering 12-month price targets for EQX in the last 3 months, the stock has an average price target of $6.04, which is nearly 56% upside from current levels.
Potential Catalysts / Reasons for the Hype:
- An overall uptick in gold prices.
- Bank of England’s decision to buy long-dated U.K. government bonds in order to stabilize the pound.
- Corporate Insiders Bought Shares Worth $29.7K in the Last 3 Months.
On analyzing the company’s stock charts, there seem to be multiple 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.
#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.
#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.
#9 Oversold RSI: The RSI is currently moving higher from oversold levels, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for EQX is above the price of $4.00.
Target Prices: Our first target is $5.50. If it closes above that level, the second target price is $6.50.
Stop Loss: To limit risk, place a stop loss at $3.20. Note that the stop loss is on a closing basis.
Our target potential upside is 38% to 63%.
For a risk of $0.80, our first target reward is $1.50, and the second target reward is $2.50. 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:
- Hedge Funds Decreased Holdings by 86.0K Shares Last Quarter.
- The company has a history of net loss. For the year ended December 31, 2019, the company reported $20 million in losses.
- The Company is a defendant in various lawsuits and legal actions for alleged fines, labor related, and other matters in the jurisdictions in which it operates. On December 31, 2021, the Company recognized a provision of $11.6 million (2020 – $13.2 million) for legal matters.
- The company was formerly known as Trek Mining Inc. and changed its name to Equinox Gold Corp. in December 2017.
- Mining activities at the Los Filos mine were disrupted in 2020 and 2021 as a result of community blockades and the Company has had disruptions at its Brazilian operations, including at Aurizona. The Company may suffer material negative consequences to its business due to community actions to the Company’s operations.
- Equinox Gold faces significant and increasing competition from other mining companies, some of which have greater financial and technical resources than Equinox Gold, for a limited number of suitable properties and resource acquisition opportunities.
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!
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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Source: Trades of the Day