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Small Cap Trading Frenzy Drives Penny Stocks In October

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Speculative fervor took a boost in September trading as the Russell 2000 small cap index broke into a bull market, driving penny stocks, according to Investopedia. The top two performers in September’s penny stocks to watch list, RADA Electronics Industries, Ltd. and 22nd Century Group, Inc., sustained their top positions in October, an unusual occurrence.

Three of the other top September stocks, Intrepid Potash, Inc., Moleculin Biotech, Inc. and Zynga, Inc., gained higher positions in October, reflecting the continued strength of biotech and technology.

The technical conditions supporting these equities should persist through the fourth quarter and into 2018, portending multi-year highs for many of these issues.

Source: Investopedia

1. RADA Electronic Industries, Ltd. (RADA)

RADA Electronic Industries, Ltd. (RADA), a defense electronics system of advanced electronic systems for airborne and land applications, sustained its top spot for the second consecutive month.

RADA Electronics broke out to a 2-year high during the period.

After joining Nasdaq in the 1990s, the stock suffered a multi-decade decline. It ground out a series of lower highs and lows through January 2016’s all-time 54-cent low.

The stock spent 16 months moving sideways in a narrow basing pattern before turning higher in May 2017 and rallying back to 2016 resistance at $1.78.

The stock cleared major resistance at $2.25 in July 2017, entering an uptrend that’s now filling the July 2015 gap between $2.50 and $3.60. Buying pressure remains strong, raising odds it will test 2015 resistance near $4.00.

Following capital raising activity with institutional investors, the company recently converted loans to equity and increased its net cash position by $13.3 million while reducing ongoing annual interest payments by approximately $250,000.

On Aug. 21, RADA completed a $10 million capital raise under an existing shelf prospectus, issuing 4,604,500 shares. The investors included leading Israeli institutional investors, such as Yelin-Lapidot Investment House, More Investment House, Noked Capital, and The Phoenix Insurance Company.

From Aug. 17 until Sept. 5, DBSI, the company’s primary shareholder, exercised warrants and converted a loan to equity. It sold a portion of the shares gained to institutional investors such as Optimus Fund and others. On a net basis over the period, DBSI increased its shareholding in RADA by 1,168,782 shares to approximately 12.2 million shares, representing 35% of the company’s equity on a fully diluted basis.

Source: Investopedia

2. 22nd Century Group, Inc. (XXII)

22nd Century Group, Inc. (XXII), a plant biotechnology company that provides tobacco harm reduction and development of proprietary hemp/cannabis strains, rose from the number three spot in August to number two in September. The stock posted its highest high since July 2014.

In 2013, the stock broke out above multi-year resistance near $1.50, rallying to a record high a few months later at $6.36. It then began a persistent decline through August 2015 before finding support at 56 cents, followed by a bounce to $1.75.

The stock traded within these boundaries for 22 months, bouncing at support three times and reversing at resistance in equal measure. The price returned to that level a fourth time, improving odds for a breakout that could double the price in the year’s second half.

22nd Century Group found support near 70 cents in the second half of the year, testing that level three times ahead of a March 2017 uptick that has now reached ranged resistance. A breakout over $2.00 should draw strong buying interest favoring a high percentage rally back to its three-year high.

The stock hit its highest high since 2014 on August 7, 2017, and pulled back to the 20-day SMA, testing support around $2.00. This price level could offer a platform for continued upside that reaches longer-term resistance near $4.00.

The stock joined the Russell Microcap Index four months ago, when FTSE Russell reconstituted its U.S. and global equity indexes.

Membership in the Russell Microcap Index signifies automatic inclusion in the value style indexes. FTSE Russell determines membership for its Russell indexes primarily by objective, market-capitalization rankings and style attributes.

22nd Century Group focuses on genetic engineering and plant breeding that allows the increase or decrease of nicotine levels in tobacco plants and cannabinoids levels in cannabis plants. Its primary goal for tobacco is to lessen the harm caused by smoking. The primary goal for cannabis is to develop proprietary hemp/cannabis strains for new medicines and agricultural crops.

Source: Investopedia

3. Intrepid Potash, Inc. (IPI)

Intrepid Potash, Inc., the number four penny stock to watch in September, rallied 24% to a 23-month high, jumping to the number three spot in October, displacing Trilogy Metals, Inc.

The only U.S. producer of muriate of potash, Intrepid Potash moved from the number nine spot in August to number four in September.

In 2010 the stock suffered a decline that reached an all-time low at 65 cents in March 2016. The stock then rebounded above $1.50 in June before a December 2016 breakout that soon stalled at $3.04.

A stair step bounce reached a 21-month high at $3.93 on Aug. 3, 2017, giving way to a rectangular consolidation with support near $3.15.

Intrepid generated a second quarter net loss of $5.9 million, or $0.05 per share, delivering a first half net loss of $19.6 million, or $0.19 per share. This marked an improvement over the net losses of $13.4 million, or $0.18 per share, and $31.8 million or $0.42 per share, in the second quarter and first half of 2016, respectively.

Improvements in year-over-year net loss per share were driven in part by a gain in outstanding shares from the March 2017 secondary offering.

Consolidated gross margin advanced to $3.7 million and $0.8 million in the second quarter and first half of 2017, respectively, against the prior year. Improvements were due to lower cost solar potash production and higher average net realized potash pricing that offset lower average net realized sales prices for the product, Trio.

Cash provided by operating activities rose year-over-year to $9.7 million and $11.5 million for the second quarter and first half of 2017, respectively. Increased cash flow was due to strong spring demand, increased potash prices, and the elimination of costlier conventionally mined potash from the production profile.

Source: Investopedia

4. Moleculin Biotech, Inc. (MBRX)

Moleculin Biotech, Inc. (MBRX), the number seven penny stock to watch in September, moved to the number four spot in October,

The stock went public in June 2016 at $8.99 and began a downtrend that continued to post new lows into May 2017 before it bottomed out at 71 cents. A June test held support, ahead of an uptrend that completed a high volume base breakout which saw the stock rally to an 8-month high at $3.75 by the month’s end.

A pullback in July found support at the 50-day EMA, causing a bounce to range resistance, followed by a decline that could attract strong buying and continued upside toward $6.00.

The company recorded a net loss of $3.3 million in the second quarter of 2017 for the change in fair value on revaluation of its warrant liability associated with warrants issued in conjunction with its stock offering in February 2017.

The company recorded a gain in the second quarter of 2017 of $1.2 million related to expiration of warrants issued as part of the February 2017 stock offering.

The net loss for the three months ended June 30, 2017 was $2.3 million, including non-cash income of $1.2 million related to a gain recognized on the expiration of warrants, which was offset by a non-cash expense of approximately $3.3 million on the change in fair value of the company’s warrant liability. The net loss also included additional noncash charges for $0.1 million for stock based compensation and other stock based expenses.

As of June 30, 2017, the company had $9.3 million in cash and cash equivalents compared to $5.0 million at Dec. 31, 2016. Through June 30, 2017, $3.2 million in cash was received from the exercise of warrants issued in the February public offering. Cash used in operations was $3.4 million for the period ending June 30, 2017.

Source: Investopedia

5. Zynga, Inc. (ZNGA)

Zynga, Inc., the number 10 penny stock to watch in September, moved up to the number five spot in October.

A company whose mission is to connect the world with games, Zynga went public in December of 2011. The stock reached an all-time high at $15.91 in March 2012, then dropped in a straight line to $2.09 in November, ahead of a bounce that stalled near $6.00 in 2014.

The stock found support at the 2012 low in the first quarter of 2016, then turned higher, rallying to a three-year high in June 2017. Price action since then made a symmetrical triangle on top of the 200-week EMA.

The company achieved record mobile revenue of $179.9 million and bookings of $181.6 million in the second quarter, with revenue up 30% year-over-year and bookings up 33% year-over-year.

Mobile commerce now represents 86% of total revenue and 87% of total bookings, respectively. Mobile online game revenue was up 39% year-over-year, and mobile user pay bookings were up 45% year-over-year. The company’s mobile audience reached 19 million average daily active users, up 28% year-over-year and the strongest since Q4 2014.

GAAP operating expenses for the quarter were 67% of revenue – down from 73% of revenue for the same period in the second quarter of 2016, while non-GAAP operating expenses were 58% of bookings – down from 68% of bookings a year ago.

The company recently delivered its first quarter of GAAP pre-tax profit since Q4 2012, due in part to progress in improving operating leverage and the lowest quarter of stock-based compensation expense in more than three years.

The company generated operating cash flow of $37.8 million, which was the best quarterly performance in five years.

Source: Investopedia

6. Xplore Technologies, Corp. (XPLR)

Xplore Technologies, Corp., which manufactures tablet PCs, declined from a high at $100 in 2010 to $3.05 in 2013. The stock entered a recovery wave that stalled near $7.50 in 2014, before failing to test that level in 2015. The stock collapsed in June 2016 before finding support at an all-time low at $1.54 in June 2017.

The stock recovered above the 2013 low in August, then fell into a symmetrical triangle which could yield a vigorous rally up to 2015 resistance at $6.15 in the next few months. A buying spike above $3.70 could set that recovery into motion.

The company’s mobility solutions are designed for the energy, utilities, telecommunications, military, manufacturing, distribution, public safety, health care, government and field service sectors.

For fiscal quarter one for 2018, ending June 30, 2017, the company reported revenue of $20 million, a 21% gain year over year and a 30.9% gross margin. EBITDA was $839,000 compared to $1.1 million in the first quarter of 2017. GAAP net income was $239,000.

Source: Investopedia

7. Plug Power, Inc. (PLUG)

Plug Power, Inc., a manufacturer of fuel cells, sold off from a split-adjusted $1,565 in 2000 to an all-time low at 12-cents in 2013. The stock turned higher in March 2014, but stalled at $11.72 before falling to 83 cents in March 2017. In the last six months, the price spiked to $2.70, before suffering another fall. A breakout should target the May 2014 low at $3.65, which would mark a high percentage rally from the current level.

The Plug Power plant in Latham, N.Y. has ramped up manufacturing to deliver third quarter production, which will be the largest quarter in the company’s history, with an estimated 10 GenKey hydrogen fuel sites and nearly 3,000 GenDrive units to be deployed.

In addition to the ramp up, the second quarter 2017 saw continued efforts to improve he business model, boost margins and expand its customer base.

The company kicked off the second quarter signing a strategic GenKey agreement with Amazon, which will generate about $70 million in revenue for 2017. On July 21, the company announced an agreement with Walmart to provide GenKey hydrogen fuel cell energy solutions to 30 more sites in North America over the next three years. Ten of these sites were contracted and scheduled to be finished by the end of 2017.

Source: Investopedia

8. Durect, Corp. (DRRX)

Durect, Corp., a biopharmaceutical company developing therapeutics based on its epigenetic regulator program and proprietary drug delivery platforms, posted an all-time low of 61 cents in November 2012 before embarking on an uptrend that topped out at $3.42 in June 2015. A subsequent decline unfolded in multiple waves, ending at a 2-year low in April 2017 followed by a recovery that stalled at resistance near $2.00 in July.

The stock has since recovered, finding support at the 50-day EMA and challenging the second quarter high.

In mid October, the company reported that Persist, the Phase 3 clinical trial for its Posimir pharmaceutical, did not meet its primary efficacy endpoint of reduction in pain on movement over the first 48 hours after surgery as compared to standard bupivacaine HCl. While results trended in favor of Posimir versus the comparator, they did not achieve statistical significance. Posimir is an investigational drug candidate being developed for the treatment of post-surgical pain.

Posimir is an investigational extended-release depot utilizing Durect’s patented Saber technology intended to continuously deliver bupivacaine to the surgical site for 72 hours to provide up to three days of continuous pain relief after surgery. Posimir is a drug candidate under development and has not been approved for commercialization by the U.S. Food and Drug Administration or other health authorities.

Source: Investopedia

9. Microvision, Inc. (MVIS)

Microvision, Inc., a provider of ultra-miniature projection display and sensing technology, topped out at a split-adjusted $548 in 2000 before entering a downtrend that continued into a 2012 low at $1.11.

A 2013 bounce to $3.49 carved posted resistance, ahead of multiple reversals that have outlined a rectangular basing pattern. The stock rebounded in October 2016, entering an uptrend that’s has reached the upper half of its persistent trading range. The stock broke out to a 22-month high in September and has since settled near $2.75, signaling an upside that could reach the 2015 high at $4.23.

The company announced in August that it sold 1.5 million unregistered shares to a private investor who is also a current shareholder at a price of $2.10 per share, for aggregate consideration of $3.15 million. Microvision intends to use the proceeds from the issuance for general corporate purposes.

Microvision’s display and sensing solution can be adapted to an array of applications and form factors. MicroVision’s business model and product line offering includes display and sensing engines, licensing its patented technology and selling components to licensees for incorporation into their scanning engines.

In September, Microvision and WPG Holdings, a distributor of semiconductor components in Asia, entered into an agreement for distribution of Microvision’s line of PicoP scanning engines across Asia.

Source: Investopedia

10. BioDelivery Science International, Inc. (BDSI)

BioDelivery Science International, Inc., a pharmaceutical company with a focus on pain management, broke above 7-year resistance at $8.26 in 2014, then rallied to an all-time high at $18.48 a few months later. A pullback into 2015 triggered a failed breakout, delivering a decline that continued into a November 4-year low at $1.50.

The stock tested that level in April 2017 and turned higher, supporting an uptrend to a 52-week high at $3.60 in July. The stock fell in September, finding support at the 200-day EMA. It could bounce back to the third quarter high.

The company announced in September that Health Canada granted market authorization to formally transfer the Drug Identification Number (DIN) ownership of Belbuca (buprenorphine) buccal film in Canada to BDSI’s commercial partner, Purdue Pharma in Canada. This approval triggers a milestone payment to BDSI.

Belbua incorporates BDSI’s BioErodible MucoAdhesive (BEMA) drug delivery technology and is the only long-acting opioid that uses buccal film technology to deliver buprenorphine for patients living with chronic pain. Belbuca was approved in Canada in June 2017 for the management of pain severe enough to require daily, continuous, long-term treatment and that is opioid-responsive and for which alternative options are inadequate.

Technology and biotechnology highlight October’s penny stock list while the recent Russell-2000 breakout should benefit an assortment of low-priced stocks in the fourth quarter. Nevertheless, this group remains speculative, requiring aggressive risk management.

Penny stocks require investors to make some guesses about the future. Very few such stocks have a sufficient track record to indicate they will prosper. At the same time, the stocks on this list are in significant industries and have the potential to be vital players in their industries.

Featured image courtesy of Shutterstock.

 

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.9 stars on average, based on 8 rated postsLester Coleman is a veteran business journalist based in the United States. He has covered the payments industry for several years and is available for writing assignments.




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Analysis

General Motors Fires 27,000 People, Stock Jumps by 5%

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

In early November, we commented on GM, arguing that the stock may reach $40. Not much time has passed, and yet many key events occurred, which increased the volatility in General Motors’ stock. Currently, any major rise is unlikely, as Donald Trump is now taking part in this.

Until recently, things were quite in line with the technical analysis, with the stock correcting to $33.80 and then going up to reach $40.

See the prediction chart we made on Nov 2, below:

On Nov 26, however, GM announced its cost reduction campaign that included firing up to 15% of the employees and around 25% of the management, as well as closing the factories in Michigan, Maryland, and Ohio in the US, and Ontario, Canada.

This was very bad news for the families of the fired employees, but the investors liked it, which pushed the stock up by 5% within a single trading session.

This job cut is of course not in line with Trump’s policy; while the US president is trying to bring the manufacturing back to the US by cutting the tax rates, GM is closing the US based factories, while still maintaining those in Mexico and China. Trump finally said the US government might cut off the tax exemptions for GM,

And this can be well understood. This is not only about the job cut. In 2009, the US government paid $30B just to save the company, which then went public right after bankruptcy. Now, 9 years later, GM is closing its US based factories, but still maintains those in Mexico, where the local government also took part in rescuing the company.

GM reacted on the president’s words with a comment that the trade wars led by Trump made the steel and aluminum import more expensive, which meant the exported GM products were no longer as competitive as before. The major reason lies, however, in bad sales of automobiles. The Q3 earnings report was good, but not because sales were high; rather, it was because car prices went up.

By cutting production, GM is going to save up around $6B, thus doubling its investment into electric car development, including driverless ones.

The only company that wants to increase the manufacturing capacity in the US is Tesla, and, for it, the GM news is very good, as the company may buy the factories being closed and start producing Tesla cars there. This made the Tesla stock rise by over 1%. It would rise much higher in case the decision by GM was final, but it is not.

GM may still keep the US based factories, closing only those in South Korea next year. However, it remains to be seen whether economic and social pressure will get GM to reverse its decision or prolong its factories in North America.

If this is the case, it will be a win-win, as investors will get a higher stock price, the government will keep the jobs, and GM will get additional privileges.

However, GM may still close the US factories, and in this case, nothing may be predicted for sure. Trump’s policy is well unpredictable anyway, and his threats on GM losing its tax exemption privileges may come true. GM will anyways get the positive effect of the factories closing in the short term, but, in a longer term, the company’s activities in the US may suffer a lot. In this case, everything will depend on the factories in the rest of the world, where GM has better conditions.

Thus, fundamentally, the outlook is uncertain and somewhat negative. Let’s see what we can do here with some tech analysis.

Support and resistance levels are key here. The resistance at $37 formed after the earnings report and was active for around a month. Over this time, a key support appeared at $34, then other support levels formed at $35 and $36, which finally broke out the resistance at $37.

It was first broken out when the job cut news came in, but then Trump’s criticism made the price correct; still, it was soon back near $37.

Thus, the report led to a high demand for GM shares, which was followed by a consolidation, as all positions had been taken and the market needed new buyers. Nobody wanted to buy at $37, though, so the price pulled back to $34, where it actually had been before the report came out.

This motivated investors to buy at this good price, and the stock went up quickly.

While the price was going up, new support levels were being formed, which could signal an uptrend. A new support was formed at around $35, which means the investors were no longer expecting any major pullbacks.

When the news on GM job cut came out, new buyers jumped in, which pushed the stock over $38. Those who were late to buy were waiting for a pullback to buy at a better price, which formed another support at $36. The price then went up to $37, where it is currently now.

All this means is that investors have been adding long positions in GM over the last two months, the short float is very low, just 1.99%.

A large amount of longs has a drawback: in case most investors decide to quit, this will lead to a sharp decline. Thus, it is important to find the expected exit point.

In order to find it, one should determine when the stock became popular. This can be easily found at the moment when the earnings report came in.

This particular price level, $33, is a good stop loss; right here, the investors may stop expecting the price to rise and start closing their positions.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 20 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Stock Picks

Stock Pick: Alphabet Inc. (Parent Company of Google)

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Alphabet Incorporated (GOOGL) is a company that needs no introduction. The multinational conglomerate was established through the corporate restructuring of Google in October 2015. With the reorganization, Alphabet has created two segments: Google and Other Bets. Google focuses on internet products such as YouTube, Search Ads, Google Play and others while Other Bets specializes in selling internet and television services. The company had a net income of $12.662 billion in 2017.

Technical Analysis of Alphabet Inc. (GOOGL)

GOOGL has been correcting after posting an all-time high of $1,291.44 in July 2018. At that price level, the stock showed signs of bullish exhaustion. First, GOOGL had five attempts to get a weekly close above $1,254. However, each one failed because the volume was anemic. In addition, a long bearish divergence was spotted on the weekly RSI. As volume and momentum faded, price eventually followed.

Nevertheless, the pullback is giving us an opportunity to buy at a firm support level.

Technical analysis shows that GOOGL is headed to meet support of $995. This support level is strong as it used to be a firm monthly resistance back in May 2017. Bulls struggled to breach this area but they finally did it in October 2017. After that, the support was retested in April 2018. The retest led to the rally to the all-time high of $1,291.44.

With the S&P showing signs of weakness, we will just play the bounce to be on the safe side. Be sure to lock in profits once targets are reached.

Fundamental Analysis of Alphabet Inc. (GOOGL)

On top of our technical analysis, fundamental analysis also supports our short-term bullish view.

The parent-company Alphabet Inc. posted its third-quarter figures recently that beat expert estimates. Experts estimated an earnings per share (EPS) of $10.54 but the stock revealed quarterly earnings of $13.06 per share. With this development, GOOGL has gone above consensus EPS three times in the last four quarters.

In addition, its trailing twelve months price-to-earnings ratio is 39.59. While the stock may look overvalued, it is actually not far from its five-year average of 34.42. If you also consider that GOOGL has a five-year maximum P/E ratio of 66.23, then it is safe to say that the stock has some upside potential in the short-term.

The strategy is to buy on dips as close to $995 as possible. As long as the stock is above this level, it has the momentum to bounce to our targets of $1,112. Take that out and there’s a possibility of revisiting resistance of $1,254.

The timeline for the target is less than six months.

Weekly GOOGL Chart

Monthly GOOGL Chart

As of this writing, the Alphabet Incorporated stock (GOOGL) is trading at $1,055.94.

Summary of Strategy

Buy: On dips as close to $995 support as possible.

Target:  $1,112 and then $1,254.

Stop: Close below $976.

 

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.8 stars on average, based on 286 rated postsKiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

DHI: Let Us Trust the Technical Analysis

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

With the market being a bit overheated, it needs a good correction, after which prices will become attractive for investors, who are taking profits on good company reports. The news overall is still positive, and in this situation, only inexperienced traders are ready to buy securities at maximum prices and outweigh possible drawdowns that can last more than a year.

In this regard, let’s take a stock much dependent on technical analysis, with fundamentals not being that important.

Even in the face of a declining market, there are stocks that could be bought, provided that they are not at their historical highs.

From the point of view of technical analysis, DR Horton, Inc. (NYSE: DHI) is a good option.

DR Horton, Inc. is a US state-owned housing company registered in Delaware, which forms part of the S&P500 Index. In 2017, the company was recognized as the largest housing developer in the United States.

DR Horton, Inc. manages three branches: Emerald Homes operates in the luxury real estate segment, Express Homes is designed for first time home buyers, while Freedom Homes is focused on customers over 55 years old.

The debt to equity ratio is 0.35, which indicates the financial stability of the company. Only in 2008, during the mortgage crisis, it was over 1.00, and shortly after the company’s revenue gradually grew up, while the debt remained at the same level.

The company’s quarterly reports are subject to seasonal factors, but they are still better than last year.

Technically, there’s an uptrend on W1, as the price is still above the 200-day moving average, which has been supporting the stock over the last 7 years. Every time the price went down to the moving average, a reversal followed, and the price made new highs. There’s some logic in it: the price approached the moving average five times, and four of them in fall, after which in November the stock rose again. Of course, this could well be explained with fundamentals. In technical analysis, however, it is important to find a pattern that will increase the likelihood of an event, and the news factor triggering the impulse may appear a little later.

At the moment, the price is somewhere where the probability of its rise is much higher than the probability of decline.

In technical analysis, the possible direction of a price move is determined first on larger time frames, after which it is necessary to switch to shorter ones in order to find a confirmation.

As a result, analyzing D1, one can notice the consolidation between $35 and $37.

The consolidation in any range usually indicates the uncertainty of market sentiment, when traders do not have a clear plan and trade in both directions. This leads to short-term price impulses that end as quickly as they started because the number of people willing to buy equals the number of those willing to sell. Due to this, the balance of supply and demand is maintained, leading to the stock price remaining in a narrow range. Consolidation also has another reason, however: a large buyer.

When a large buyer appears in a stock, they may not always take over a position in one trading session if the current liquidity is insufficient. In addition, one has to disguise their purchase, otherwise, the stock price will skyrocket, and they will not be able to book the planned profit.

As a result, the large buyer begins to systematically ‘scale in’ in small parts within a certain price range with somewhat ‘blurred’ boundaries. But at the same time, every time the stock hit $35, it went up, and thus for 7 sessions in a row.

Before their final attack, the buyer ‘lets the price go’, which makes it either go up or, conversely, sink even lower. If the price reaches the bottom, the buyer starts acting more aggressively at better rates, which is accompanied with a surge in volume (clearly visible when the level of $35 is broken out).

For a more accurate analysis, however, it is necessary to pay attention to even shorter time frames to make sure the predictions are correct. When a large buyer scales in, they either do this with a limit or a market order. Limit orders are preferred, as a large market order may provoke very choppy prices. On H1, we can see it was a limit order indeed, as after the price broke out $35, it stopped near $34 and could not fall below during the next two trading sessions.

The subsequent attempt to fall below $34, meanwhile, led to the fact that at the end of the trading session the stock got back to $35, i.e. the buyer had already begun to actively defend their position. The scaling-in process is over, and they are now waiting for the price to rise.

Retail traders are unable to hold the price or protect their positions at a certain level, but they don’t actually need that. Instead, understanding where the large buyer or seller holds their positions is enough, placing a stop at these levels. The large trader will take care of the rest.

Thus, one can see the large buyer resumes their activity when the price drops below $35 and acts even more aggressively when it’s approaching $34. Basing on these assumptions, we can single out support between $34 and 35. Accordingly, the stop may be placed below the low at $32.50.

In technical analysis, everything is based on the historical data, previously seen patterns and assumptions, but you can never know for sure what will actually happen. Therefore, you always need to determine the entry and exit prices. Just note: the first target for Horton may lie at $45.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 20 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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