As a rule of thumb, you get what you pay for in the market. Subsequently, most people should avoid getting involved with penny stocks. Often violently speculative, the price discovery process undergirding these challenged, often dilapidated enterprises can cause consternation to even the most battle-hardened gambler. Still, the rewards of catching the right name at the right time can be intense.
For those who don’t mind living life on the edge, Repay Holdings (NASDAQ:RPAY) should be on your radar.
A financial technology (fintech) firm based in Atlanta, Georgia, Repay specializes in providing integrated payment processing solutions to businesses. Primarily, the entity is involved in helping companies accept, process and send payments efficiently. Naturally, payment processing represents a critical function for nearly every business. Repay brings value to this protocol through streamlining, payment format diversity and enhanced security measures.
Although the brand represents an essential partner in the modern economy, the same love hasn’t been shared for RPAY stock. Since the beginning of this year, RPAY has lost more than 48% of value, a staggering figure. In the past 52 weeks, the security hemorrhaged more than 64%. Amid a tough backdrop for the consumer, Repay appears wildly risky.
Nevertheless, publicly traded securities follow a certain cadence. With RPAY stock, the equity’s demand profile has obviously taken on a decidedly bearish tone. At the same time, extreme pessimism has often led to a temporary reversal, potentially auguring well for Repay speculators.
At the moment, RPAY stock is riding a “3-7” sequence: three weeks of upside interspersed with seven weeks of downside, with a net negative trajectory across the period. This demand sequence has materialized 34 times since RPAY entered the public arena.
What makes the 3-7 pattern empirically intriguing, though, is this: in 61.76% of the times that the sequence occurs, RPAY stock rises in the following week. Further, the median positive return stands at 4.89%. Should the negative pathway win out (which happens 38.24% of the time), the median loss is 3.76%.
In other words, the risk-reward profile from both a probabilistic and payout perspective incentivize taking a shot.
Adding to the temptation is the baseline probability of RPAY stock. On any given moment, the chance that a one-week long position will be profitable is only 51.06%. That’s barely an edge and certainly not enough to justify a heavy wager. However, under the 3-7 sequence, the odds for the bullish speculator is closer to 62%.
Admittedly, that’s not the greatest advantage either. However, market makers are likely not pricing risk in this quantitative manner, which involves discretization. With the above analysis, we’re not interested in price fluctuations but behavioral transitions.
Essentially, the 3-7 sequence is a bearish-dominated behavioral event. However, RPAY stock doesn’t permanently occupy a certain state. Instead, when emotions of either fear or greed become too compressed, a transition to a different behavioral state emerges.
That’s what the 3-7 sequence signifies — a critical mass in terms of condensed sentiment.
Traders who understand this quantitative landscape can get a serious leg up on the rest of the crowd.
