By Trades Of The Day Research Team, Trades Of The Day, 2024-07-16
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: Opendoor Technologies Inc. (NASDAQ: OPEN)
Today's penny stock pick is the real estate services company, Opendoor Technologies Inc. (NASDAQ: OPEN).
Opendoor Technologies Inc. operates a digital platform for residential real estate in the United States. The company's platform enables consumers to buy and sell a home online. It also provides title insurance and escrow services. The platform specializes in the iBuyer business model and leverages advanced technologies such as artificial intelligence to make quick cash offers on homes with the ultimate goal of flipping them for profit.
Website: https://www.opendoor.com
Latest 10-k report: https://investor.opendoor.com/static-files/62d8cb00-7150-4671-8485-cc70956c4437
Analyst Consensus: As per TipRanks Analytics, based on 10 Wall Street analysts offering 12-month price targets for OPEN in the last 3 months, the stock has an average price target of $2.50.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company's improving profit margins, healthier inventory levels, and promising FQ1'24 guidance.
- The cooling inflation and the potential Fed pivot in September 2024 are anticipated to bring forth tailwinds.
- 2025 is expected to bring forth higher home transactions and improved top/ bottom-line performances,
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.
OPEN – 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 purple 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.
OPEN – 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 OPEN is above the price of $2.60.
Target Prices:
Our first target is $4.00. If it closes above that level, the second target price is $5.00.
Stop Loss:
To limit risk, place a stop loss at $1.80. Note that the stop loss is on a closing basis.
Our target potential upside is 54% to 92%.
For a risk of $0.80, our first target reward is $1.40, and the second target reward is $2.40. 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:
- The company has a history of net losses. OPEN incurred net losses of $275 million, $1.4 billion, and $662 million for the years ended December 31, 2023, 2022, and 2021, respectively.
OPEN – Consolidated Statements of Operations
- The company has limited operating history. OPEN launched its first market in 2014. This makes it difficult to evaluate its current business and future prospects.
- Hedge Funds Decreased Holdings by 257.6K Shares Last Quarter.
