We bought Red Cat Holdings Inc. (RCAT:OTCMKTS) too early back at the start of the year, and I have to admit to being somewhat taken in by the positive fundamental story, for as we can see now on its 1-year chart the moving averages back then were in unfavorable alignment, with the 50-day moving average way below a falling 200-day. Fortunately, as we bought at a good price, we are not down too much at this point, although it is understood that some of you may have tired of it and ditched it.
The good news technically is that the picture is now much more favorable with the price and moving averages quite tightly bunched and the 200-day flattening out – a setup that could trigger a breakout and in fact we have already seen a “preliminary” breakout with the price leaping higher early this month on the news that Red Cat is to acquire Fat Shark, which is the world's leader manufacturer of drone goggles, technically known as First Person View headsets, which for drone pilots means that instead of squinting at a phone screen in the glare of the sun to see what the drone is seeing, you are in effect on board the thing looking through its camera and thanks to these goggles it's a clear view because they shut out daylight.
The reason that the breakout early this month is classed as preliminary is because it has not succeeded in establishing the price above its 200-day moving average and it has not resulted in a bullish cross of the moving averages, although this action has set the stock up to accomplish these things on the next upleg, which is likely to be larger and result in gains which stick. Although volume indicators have not yet improved, price / volume action this month certainly looks encouraging, with a high volume spike above the 200-day moving average followed by a tight bull Pennant forming on greatly reduced volume – action which points to a breakout into a 2nd larger upleg soon.
The 2-year chart makes clear that Red Cat is historically cheap here as it has traded at much higher levels and this chart also enables us to see more clearly that a low Pan base has formed over the past year.
Some details of the acquisition of Fat Shark may be read in DRONE COMPANY SET TO ACQUIRE WORLD'S LEADER IN DRONE GOGGLES and of particular note in this is that Fat Shark is making the transition from an Analog to a Digital platform for its goggles which will likely result in a surge in upgrade business.
The conclusion is that in addition to Red Cat being cheap here with plenty of upside due to its recent acquisition of Fat Shark whose products have big growth potential, the timing looks good now too on technical grounds with a second and larger upleg looking imminent. We therefore stay long and the stock is rated a strong speculative buy here.
Red Cat website
Red Cat Inc., RCAT on OTC, closed at $1.10 on 23rd October 20.
Originally posted on CliveMaund.com at 7.25 am EDT on 25th August 2020.
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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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.
