Have you been paying attention to Opendoor Technologies (NASDAQ:OPEN) recently? Because what happened to OPEN stock — as in extreme bullishness from seemingly out of nowhere — could theoretically happen to SmartRent (NYSE:SMRT). You just have to know where to look.
On April 29, I published an article on Money Morning entitled, “So Bad, It’s Good? How the Data Supports a Surprise Reversal in Opendoor (OPEN).” You can tell from this opening hook the kind of opportunity I was referring to. At time of publication, OPEN stock appeared to represent the classic falling knife. Shares were cheap because they deserved to be. The business had simply failed too many investors over a protracted length of time.
In other words, it was time to abandon ship — and very few (if any) folks in the financial publication space gave Opendoor a chance.
Conventional wisdom, often extracted through the lens of fundamental and technical analysis, would deem Opendoor as a dilapidated entity. However, through a quantitative perspective — particularly via discrete-event analysis for the ultimate end goal of deploying modified first-order Markov chains — OPEN was clearly flashing a reversal signal.
What makes SMRT stock so tempting is that a similar signal is also flashing. Like Opendoor, SmartRent has been absolutely gutted, losing roughly 47% so far this year. Over the past 52 weeks, it’s down almost 60%. Nevertheless, SMRT’s market demand profile warrants a closer look.
As a baseline, the chances that any given one-week long position in SMRT stock will be profitable is only 44.14%. That’s part of what makes SmartRent so risky, especially compared to its New York Stock Exchange-listed peers. Big blue chips usually have an upward bias, typically around 52%. That SMRT has a negative bias implies significant pessimism.
Still, this 44% figure is the standard distribution accounting for all return profiles across all sentiment regimes. However, a security does not operate in a simultaneous mixture of contrasting regimes. Instead, it will transition between various behavioral states, from extreme greed to extreme fear and vice versa. As such, each regime should have its own distinct risk-reward profile.
Notably, SMRT stock is currently riding a “3-7” sequence: three weeks of upside interspersed with seven weeks of downside, with a net negative trajectory across the period. Empirically, whenever this sequence flashes, the next subsequent week’s price is likely to rise 66.67% of the time. Further, the median return stands at 4.35%, whereas if the bears take control, the median loss is 2.33%.
From a probabilistic standpoint as well as a payoff perspective, there is a heightened incentive to bet on SMRT stock.
Assuming that the positive pathway takes over, I anticipate that over the next 10 weeks, the bulls will attempt to push the price above the $1 level. Given the unpredictable nature of penny stocks, though, it’s difficult to pin an exact price. I would imagine the more optimistic view would target $1.10 over the next few weeks.
Should the bears wrest control, the natural risk is the loss of support at 90 cents, with a realistic downside target of 85 cents, perhaps even lower. Clearly, this isn’t an idea for the faint of heart. Nevertheless, if you were looking for a “rational” penny stock, SMRT should be on your radar.
