Red Cat is a drone stock we have traded well. It took off almost vertically last November and after doubling back some early in December it again rose almost vertically and after striking a target in late December – early January it made its way back to support at base, zigzagging early in February to avoid detection. After recharging and servicing back at base during March and April, which involved a minor test flight early in April, it is now believed to be starting another mission although it is clear that it will have to weave its way through flak in the $6.80 - $7.80 zone.
More seriously, Red Cat has done pretty much as expected, breaking down from the Head-and-Shoulders top shown into a steep drop. We had expected it to fall to $4 but in the event the decline halted at about $4.50 where a Double Bottom base pattern has formed. There are both fundamental and technical reasons to expect it to start higher again from here and by the look of it, Friday’s sharp gain on good volume marks the start of the completion of the Double Bottom.
Fundamentally, the demand for military grade drones looks set to grow and grow with wars breaking out all over the place and Red Cat has become an established player in the space and a “go to” company. There was important news out of the company on the 1st that Palladyne AI and Red Cat Announce Successful Completion of Cross-Platform Collaborative Drone Flight.
Technically, the stock has reacted back to the vicinity of a still rising 200-day moving average, a good point for it to turn up and we have seen a positive divergence of the Accumulation line as the Double Bottom has formed with it trending higher, which is bullish, with momentum (MACD) also trending higher from a low point in March. All of this suggests the onset of a new growth phase for the stock, although we are well aware of the resistance from those who got trapped in the top pattern which the stock will have to work its way through.
Probably the best tactic for those interested in the stock is to buy a quantity here, aware that it may take some time to work its way through the resistance especially in the $7 - $9 zone, and when it looks like it is close to accomplishing this, buy some more.
We took profits last December, with the 3-month chart below being from the time we took profits near to the top…
and in February called the breakdown from the Head-and-Shoulders top…
Red Cat website
Red Cat Holdings, RCAT on OTC, closed at $5.95 on 2nd May 25.
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