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: Arqit Quantum Inc. (NASDAQ: ARQQ)
Today’s penny stock pick is the cybersecurity services company, Arqit Quantum Inc. (NASDAQ: ARQQ).
Arqit Quantum Inc. provides cybersecurity services through satellite and terrestrial platforms in the United Kingdom. It offers QuantumCloud, a Platform as a Service that creates unbreakable software encryption keys. The company also provides maintenance and support, and professional services.
Website: https://arqit.uk
Latest 10-k report: https://ir.arqit.uk/sec-filings/all-sec-filings/content/0001558370-23-019267/0001558370-23-019267.pdf
Analyst Consensus: Not Covered By Wall Street Analysts.
Potential Catalysts / Reasons for the Hype:
- The company, in partnership with CableFree: Wireless Excellence Ltd announced the availability of integrated quantum-safe cellular technology products for Private 5G networks using Symmetric Key Agreement.
- Arqit Quantum Inc. and Carahsoft Technology Corp. recently announced a partnership. Under the agreement, Carahsoft will be Arqit’s Master Government Aggregator®, making Arqit’s unique Symmetric Key Agreement Platform available through Carahsoft’s reseller partners and NASA Solutions for Enterprise-Wide Procurement (SEWP) V, Information Technology Enterprise Solutions – Software 2 (ITES-SW2), National Association of State Procurement Officials (NASPO) ValuePoint, E&I Cooperative Services Contract and OMNIA Partners contracts.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out a symmetrical triangle pattern, which is marked as purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
ARQQ – 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 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 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.
ARQQ – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#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 ARQQ is above the price of $0.73.
Target Prices: Our first target is $1.15. If it closes above that level, the second target price is $1.50.
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 58% to 105%.
For a risk of $0.23, our first target reward is $0.42, and the second target reward is $0.77. 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. For the years ended September 30, 2021, 2022, and 2023, Arqit generated operating losses of $172.6 million, $63.8 million, and $84.4 million, respectively.
ARQQ – Consolidated Statements of Operations
- The company has ongoing legal proceedings. On May 6, 2022, a putative class action lawsuit was filed against Arqit and certain of Arqit’s directors in the United States District Court for the Eastern District of New York (Case No. 1:22-cv-02604), asserting violations of federal securities laws under Sections 10(b), 14(a) and 20(a) of the Exchange Act. On April 18, 2023, a putative class action was filed against Arqit and certain of its directors in the Supreme Court of the State of New York (Index No. 153555/2023).
- Corporate Insiders placed Informative Sells of Shares Worth $16.6K in the Last 3 Months.
Insiders | Source: TipRanks.com
- The Company’s limited operating history makes it difficult to evaluate its business and future prospects and increases the risk of investment. The market adoption of the Company’s product is not fully proven, is evolving, and may develop more slowly than or differently from the Company’s expectations.
- Hedge Funds Decreased Holdings by 89.6K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The markets in which the Company competes are characterized by rapid technological change, and competing product innovations could adversely affect market adoption of its products.
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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