News Flash, March 14: Red Cat Holdings on Monday announced that its subsidiary Teal Drones has been selected to compete to make a next generation small unmanned aerial system for the U.S. Army.
The ultimate goal of the Short Range Reconnaissance Tranche 2 program is to create a small, rucksack portable unit that can give all Army platoons situational awareness of what’s beyond the next terrain feature.
After a successful demonstration last September, the company has been awarded a $1.5 million contract to make a production unit that meets or exceeds the Army’s requirements.
Click here for more information.
The reason for looking at Red Cat Holdings Inc. (RCAT:NASDAQ) now is that it looks like it is ready to reverse to the upside after a lengthy downtrend/reaction, and there are several positive fundamental factors coming to the fore that are thought likely to drive renewed advance.
Red Cat is a maker of sophisticated drones and stands to benefit from the move away from using Chinese made drones for security reasons, and in addition the drone industry is being given a massive boost by Russia’s invasion of Ukraine, which threatens to spread into a wider war. Lastly, and more immediately, the company is giving an online presentation today and tomorrow that could well generate interest in the stock, and as we will now proceed to see, it is well placed to advance from here.
The three-year chart gives us a good overview of the history of the stock. The most important thing that this reveals is that Red Cat has a marked tendency to spike dramatically and then slowly react back over long periods of time. Thus far, there have been three of these spikes which occurred within a matter of weeks or days that have been followed by three lengthy reactions. The last of these spikes was back in July and the reaction following this spike has been going on for eight months now, quite a long time, and there are several reasons for believing that a breakout into a new uptrend, that may take the form of another spike, is imminent. The first is that the reaction back has taken the form of a bullish Falling Wedge, which is now closing up, and given that it has brought the price back into a zone of strong support arising from the mid 2019 to late 2020 trading range, there is a high probability that it will soon break to the upside, especially given the positive fundamental factors now coming into play that were noted in the second paragraph.
On the seven-month chart, we can see the latter part of the latest reaction in much more detail. Although still technically a bear market because the price has been drifting lower beneath negatively aligned moving averages, we can see that the rate of descent has been slowing, and this diminution in downside momentum is illustrated by the MACD indicators trending back up to the zero line. On closer inspection, the price appears to be coiling and it is suspected that what is happening is that a downsloping Head-and-Shoulders bottom is approaching completion, and if this interpretation is correct, then we are at a good entry point for new buyers here as the price is still far above the low of the suspected H&S bottom, so there is a fair chance that if investors like what they hear during tomorrow's online presentation, the stock could break higher.
The conclusion is that Red Cat looks like a strong speculative buy here, so anyone holding should stay long and new purchases are in order.
Red Cat website.
Red Cat Holdings, RCAT on OTC, closed at $1.76 on March 7, 2022.
Posted at 6.45 am EST on 8th March 22.
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.
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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.
