With shares of PRED (OTC:PRED) climbing since mid-2017, the bull case for continued gains appears highly probable. That being said, trading over the last couple of years has been anything but gradual, with large swaths of volatility throughout, including a 77.9% decline from early-June to late-July.
While that drop was hair raising, micro-cap investors should expect volatility in this particular asset class. After all, this is the same stock that moved up 774.7% from mid-December to early-June. After all that, the stock simply overshot to the upside and then overshot to the downside, which leaves us to right now.
Looking at PRED, we see the two-month downtrend likely broken with Friday’s strong 25.13% gain on strong volume. The bulls appear to be back into the name, which means we want to pick away at these levels as well. Looking at resistance levels, the first major level appears to be at $2.50, or roughly where the stock closed on Friday.
Above that, resistance should also hit around $3.10 - $3.15, $4.00 - $4.05 and $5.10. Because of the volatility in this stock, and the multi-year uptrend still in place, we expect that once the bulls are in solid control of price movement, a pronounced rally could ensue. As such, we would place a price target at $4.00.
As for support, we would look at the 200-day moving average (dma) to act as a buffer on weakness, with the 200 dma currently at $2.21. Further support is likely found at $2.00 and $1.50 - $1.55. That $2.00 level is important because it not only is a static level of support, but also where the current upward trend line is currently, and rising. Based on that, we would enter our stop loss at $1.98 for this trade.
Because of Friday’s impressive gains, we would look to see if there is any follow-through in today’s trading. If shares continue to rally, we would enter on strength. If, however, shares stumble in today’s trade, we would look to enter closer to the $2.21 dynamic support detailed above.
However, because we don’t yet know how the stock will trade 90 minutes from now, for the sake of this piece, we will set our upside potential and downside risk at Friday’s closing price. Based on Friday’s $2.49 close, our upside potential is 60.6% while our downside risk is limited to 20.5%.
This trade idea already has three times the upside potential to downside risk. If the stock pulls back in today’s trading and shares are picked up closer to the 200 dma level, the downside risk shrinks even more while the upside potential swells. Have a great week of trading.
