Yesterday morning we took advantage of the brief sharp dip that followed Monday’s spike on news that Red Cat’s subsidiary Teal Drones had won an important order, and by the day’s close the stock had bounced back and made good most of the loss.
On the latest 6-month chart below you can see that we have been buying Red Cat since December in the awareness that an important base pattern was completing.
It already broke out of this base pattern in the middle of last month with a big move on very impressive volume, again on good news and we took advantage of the post-breakout dip that followed to buy more.
The part of yesterday morning’s email alert sent out before the open that concerned Red Cat read as follows…
”Red Cat Holdings, RCAT, $2.26, meanwhile is looking really attractive here. We bought it a few weeks ago at a very good price and it broke higher yesterday on big volume on news that its subsidiary Teal Drones has secured a big order. It has dipped about 10 cents in pre-market trading this morning and so is still at a good entry point, especially as longer-term charts show it to be at a historically very good price here.
There is insufficient time to write these 2 stocks up properly before the opening this morning. So this email alert is intended to give you an early “heads up” before trading starts. Articles on both of them will be posted later on the site.”
This really is a case of 2 + 2 = 4 and yet most investors still don’t seem to get it. The company is winning big orders that are set to lead to big earnings, it really is that simple, and yet – so far – the stock has barely moved. Fundamentally the reason for this appears to be that most investors are still lumping Red Cat in with the majority of drone start ups and have images in their heads of drone “executives” being geeky guys stood around in a field somewhere with a control box flying small pilotless aircraft around and are seemingly unaware that for the winners this is big business.
Technically we can easily see why the stock has been tarrying in recent months on the chart – it has been waiting for the 200-day moving average to drop down closer to the price with the sharp high-volume upward stabs serving to drain off overhanging supply thus clearing the way for a sustainable uptrend soon. The volume pattern is exceptionally strong which is why the On-balance Volume line is soaring and now the Accumulation line (not shown) which had been weak is taking off higher too.
The 3-year chart gives us a broader perspective and enables us to see that essentially Red Cat’s history so far has boiled down to two spectacular rallies (three if you include the spike last July) that have been followed by two long drawn out reactions. The second reaction has taken the form of a very large bullish falling Wedge that is now closing up which given the exceptionally bullish volume indications means that we can expect to see it break out upside soon from this Wedge, and we have already seen on the 6-month chart that it is shaping up to do just that. So this is viewed as a very good point to buy.
The conclusion is that Red Cat has a very strong chart and looks to be on the verge of breaking out into a major bull market so we stay long and it continues to be rated a strong buy in this zone. We have already seen its marked tendency to spike dramatically and with it likely to do so again, investors here should not have to wait long to see big gains, and this time, given how the fundamentals are rapidly improving, the gains should stick.
We have bought it on a number of occasions over the past few months as shown on the 6-month chart above, one of the best entry points being on 8th March.
For an interesting fundamental assessment of the company go to Chris Temple’s 4th March article in Streetwise Reports entitled "This Drone Tech Co. Is a “Screaming Buy.”
Red Cat website.
Red Cat Holdings, RCAT on OTC, closed at $2.31 on 5th April 2022.
Originally posted on CliveMaund.com at 6.25 am EDT on 6th April 2022.
Posted on CliveMaund.com at 7.45 am EDT on 4th April 2022.
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years' experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.
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Charts provided by the author.
The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.