Despite Red Cat Holdings Inc. (RCAT:NASDAQ) developing cutting-edge drone technology and drones themselves, its stock price has been unable to gain any sustainable traction since its dramatic 2021 spikes, and this appears to have been due to investors concerning themselves with mundane considerations like orders and revenue.
However, this looks like it is all about to change, with the company making serious headway by, for example, winning an order for 200 long-range, high-speed drones for deployment in Ukraine and announcing with Athena AI on the 20th of this month breakthrough AI and computer vision capabilities for its Teal 2 military grade drone and it is this announcement that caused the stock to spike about a week ago, and interestingly, although the customary post-spike reaction started to set in, it did not give back most of the gains as it did following the May spike and it started to pick up sharply again on Friday, and this time, as you will see on the 13-month chart below, the Accumulation line rose sharply for the 1st time and has stayed at a high level, which is a sign that it may, at last, be turning to start a major bullmarket.
The company's Teal 2 drone appears to be a “game changer” as it has unsurpassed nighttime capabilities.
The 3-year chart shows the lengthy bear market that set in following the dramatic 2021 price spikes and also how it may be bottoming here at long-term support, which is certainly made more likely by the strong On-balance Volume line shown at the top of the chart and also by the rapidly improving earnings prospects for the company which is enhanced by its having acquired its own factory.
On the 13-month chart, we can see that every time the spikes higher, it almost immediately gets beaten back down again, but this latest time, not so much, and this time the Accumulation line has also spiked higher and stayed elevated for the first time, which is viewed as a bullish change in behavior.
Red Cat provides a very good example regarding why we tend to favor the Accumulation line over the On-balance Volume line as a forward guide, for on the 3-year chart, we can see that the strong On-balance Volume line, although it had and has long-term bullish implications, did not stop the price dropping to lower and lower levels in a bear market, whereas the weak Accumulation line showed the internal weakness that led to lower prices.
To understand this, you have to know what On-balance Volume is end of the day, and if the price closes up, the volume tally is added, but if it closes down, the volume tally is subtracted, regardless of how the price gyrates around during the day, the Accumulation line, on the other hand, is intraday and therefore presents a more faithful picture of what's going on. This is why it is good to see the Accumulation line soaring and staying elevated for the 1st time on the latest spike by Red Cat.
Other bullish factors to observe on the 13-month chart are the duration of the base pattern that started to form back last November, which has allowed time for the falling 200-day moving average to drop into the price range, setting it up to reverse, the massive buying on good news last month and this month, which is clearly bullish and the diminution in downside momentum (MACD) which is now starting to swing positive.
Red Cat is therefore considered to be a good investment with big upside from here, so anyone holding should stay long, and it is rated a Strong Buy around current levels.
Red Cat's website.
Red Cat Holdings closed at $1.18 on June 23, 2023.
Originally published on clivemaund.com on June 23, 2023, at 4:00 pm EDT.
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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.
