Stocks are experiencing some volatility today, as the S&P 500 is in jeopardy of snapping its 7-day winning streak.
However, my focus is on penny stocks today… this morning I was looking at: WTR, PHUN, and FRED for possible swing trade setups.
On these type of trades I’m hoping for them to return anywhere between 5-20% in a matter of days, sometimes the moves happen right away, but usually, you want to give the trade some time to breathe.
Now, another type of trade I alert clients on is my catalyst swing trade. The kind of returns we’re looking for on these is anywhere between 20% or more…and the holding period could stretch to a few weeks…so a longer hold period and larger profit target here.
(If you want to get started trading with me, click here to get started)
That said, it’s time for my latest catalyst swing trade alert, if you’ve missed my last two you can find them here and here.
My latest alert is loaded with catalysts including: unusual options activity, M&A speculation, and cutting edge technology.
Read on for my full report.
Energous Corp. (WATT) Overview
This stock has looming catalyst that could send the stock flying in 2019. Before we get into the catalysts and the play… let’s look at WATT’s company profile.
Energous (WATT) develops wireless charging technologies. The company develops WattUp wireless power technology that consists of semiconductor chipsets, software controls, hardware designs, and antennas that enables radio frequency based wire-free charging for electronic devices. The company’s new product, LOWDOWN is a highly-scalable, cloud-hosted enterprise-class software infrastructure for the management of distributed wireless power networks comprised of wireless power transmitters and receivers.
The science underpinning wireless charging technologies has baffled most amateur investors of an industry steeped in electronics and physics theory. This knowledge barrier between assertions made by the company’s CEO Stephen R. Rizzone and the general investor public has allowed financial and media intermediaries to weigh-in on whether the engineering team at Energous can miraculously overcome Friis Transmission Equation and develop a viable commercial product capable of safely charging consumer electronic devices at distances of more than mere inches from a power source without radiating its customers.
Now, that debate has grossly overshadowed the market and financial implications of the technologies Energous has actually achieved and delivered to market, for instance the company’s evolutionary short-range changing solution, WattUp.
Due to the fact that WattUp doesn’t satisfy many dreamy retail investors like a 15-foot wireless charging solution would, additional potential buyers have found too many links to short-sellers bashing Rizzone for his disingenuous financial projections and delivery dates.
WATT Price Performance Stats
However, that all changed on Dec. 27, 2017, it appeared at first bush the dreamy-eyed speculators of the stock might have been ‘on to something’, when an announcement that the Federal Communications Commission (“FCC”) approved the company’s wireless charging technology, called “WattUp.”
With the help of a lazy financial media not willing to put the achievement into context, retail investors previously unaware of the WATT trade jumped at the chance of beating institutional investors to an “undervalued” stock. The stock onslaught of 116M shares traded during the last-three trading days before the New Year, a 7,600% spike of volume to a previous average weekly volume of approximately 1.5M shares, also cause WATT stock price spike to as high as $33.50, from the $8.85 close prior to the announcement.
By that Friday’s close, profit takes caused the stock to drop to $19.45. for a weekly gain of 120%, down from a whopping 279% high following the announcement.
Fifteen months later, a $6-ish stock price can arguably be attributed to no further milestones from the company associated with what now appears to many as a company breaking its promise of defying the laws of physics and the fortune the company might have made with its “Wireless Charging 2.0” program.
Could Buyers Step in on WATT Soon?
However, the chart below shows that buyers of WATT may be overwhelming sellers between the $6.50 and $5.50 price level. Although the magnitude of the buyer-seller mismatch in relationship to the effect upon the stock’s price is not as dramatic as we saw following the announcement of the FCC approval for WattUp technologies, a significant enough of a mismatch between buyers accepting high offers hasn’t been seen since the buying onslaught of late-December 2017.
It appears buyers have told Wall Street that the market capitalization for Energous of $175M is low enough. If traders take stock of the potential and unrealized value of the company inventory of intellectual property, numbering 183 patents granted; 125-plus pending patents; and 19 patent applications expected to be submitted to the U.S. Patent Office and of the same authorities abroad, $175 million is ‘chump change’ in today’s lofty environment.
Here’s a look at the daily chart on WATT.
So, now What?
Well, we’re noticing one of our bread-and-butter patterns in WATT.
If you look at the chart above, WATT just had a steep drop… but it’s found some support between $5.50 – $6. This support area is what we call an area of value. Basically, we’re watching this area for buys, since there are catalysts on the table that could send this stock higher.
Now that we have an idea of where the stock is trading and the pattern we’re watching… let’s look at some of the catalysts.
Short Squeeze Potential
With so many patents secured by Energous along with Wall Street analysts who’ve suggested an average target price of $14.87 per share of WATT is reasonable, the idea behind the trade involves a reasonable assumption of a colossal ‘short squeeze’ potential.
Why would Wall Street expect a two-bag move from today’s $6 handle? As a percentage of shares held short to the stock’s ‘float’ equating to more than 36% – an unusually high level, indeed. That said, any significantly positive news will likely catapult the share price of WATT to a double-digit stock.
Why the discrepancy between Wall Street pros and the market for WATT? The answer might lie behind the noise generated by vocal short sellers.
Aside from a ‘black swan’ announcement (from the viewpoint of the shorts) associated with somehow hacking Newtonian Physics and shocking the world with safe wireless charging technologies at 3-foot and 15-foot distances, the following catalyst might serve as a more-than-good-enough reason to trigger a panic short squeeze. And that’s all long traders want. Isn’t it?
WATT May be a Buyout Candidate
The number one catalyst for a short squeeze squarely rests with a possibility of an announcement that the company’s strategic partner, source of significant working capital and billion-dollar distribution network, Dialog Semiconductor (DLGNF), purchases more shares of WATT. Currently, Dialog holds approximately 12% of Energous outstanding shares, leading all holders of the stock, including the stake made by the massive institution Blackrock, which as nearly $6T in assets under management (AUM).
With more than $1B of revenue and strong net income figures, Dialog is certainly in a position to acquire Energous at $350M, or more. That estimated purchase price equates more closely with Wall Street’s expectation of a $14 share price for WATT.
Why does a purchase of Energous fit into Dialog’s plan to participate during the rollout of 5G and the massive market for the Internet of Things (“IoT”)?
Presumably, the Dialog purchase of Silego Technology (“Silego”) on Nov. 1, 2017 for $276M offers one giant clue that hasn’t been overlooked by Wall Street pros.
Now, there are some similarities between WATT and Silego. Silego quietly came out of nowhere to become the second-fastest growing Configurable Mixed-Signal Integrated Chip (“CMIC”) maker in the world. By August 2016, the company boasted shipments of more than 2B units to companies that manufacture handheld devices, wearable electronics, computing & storage, consumer electronics, smart home, networking & communications and medical & industrial products.
With Dialog’s acquisition of Silego, it begs the question: what company would Dialog need to secure a market share for itself within the IoT ‘gold rush’?
Energous, of course.
Taking a meaningful stake in a strategic partner before outright purchasing it is as common as finding fleas on a dog.
The Options Market is Telling Us Something Big Might Be Coming…
Now, there is a mind-boggling figure for the open interest of call options with an expiration Jan. 17, 2020. This should clearly cause the short-sellers to go back into hiding… because this might be a year of fireworks for WATT.
And after looking at the largest open interest (10,000-plus calls) for the Jan. 17, 2020 expiration is at the $50 strike price. One could think that one trader – or a group of traders – bet more than $6M of notional worth of underlying stock… that said, this could be a repeat of the December 2017 price spike very soon.
Sharing is daring…
If you want to share your thoughts about this or any other topic regarding trading stocks, hit me up on Facebook or Twitter.