Sticking With This Ondas Price Target as FCC Drone Update Weighs on Stock

Almost a month ago, I wrote to "Stocks Under $10" readers about one of my then-newer holdings, Ondas Holding (ONDS) . 

I showed readers a falling-wedge pattern of bullish reversal, slapped a target price of $11.70 on the shares and then watched from a distance. The shares were trading at a rough $9.00 at the time. They went on to peak at $9.86 (my old NYSE badge number, save the decimal) before behaving in a somewhat volatile way. 

On Tuesday morning, as I write this piece, I see ONDS trading close to $8.58.

There was news. Early last week, the U.S. Federal Communications Commission increased regulation restricting foreign-made drones and their components. In fact, the FCC released a public notice announcing that it will generally deny equipment authorizations for non-U.S. made drones and drone parts. Drones and drone parts already in the country are not impacted, but the future of foreign made equipment certainly will be.

The good news is that Ondas is a Boston, Massachusetts headquartered company. This is where things get interesting. Ondas Holdings started out as Zev Ventures way back in 2014. Zev Ventures was based in Nevada. Still no problem. The company was acquired by Ondas Networks and changed its name in 2018, moving back and forth between California and Massachusetts. Along the way, as the firm moved from the telecom business into robotics, airborne and ground-based drones, acquisitions were made.

As a Result...

After acquiring a number of global subsidiaries, some of Ondas Holdings equipment is manufactured domestically in Wixom, Michigan, and Huntsville, Alabama. However, some equipment is manufactured in Petah Tikva, Israel and Klepp Stasjon, Norway.

There are already plans to bring the Norwegian production to Pennsylvania. This is not the end of the world, but as Ondas does business with the U.S. Department of Defense as well as U.S. allies in Europe and the Israeli military, supply lines could get stretched if everything has to be manufactured in its home markets. While I think this is something the firm can work past, it has created a bearish technical pattern.

The Chart ​

Regular readers will recognize the falling-wedge pattern. Later in the month, the stock enjoyed the benefits of a swing traders' golden cross (21-day EMA crossing above the 50-day SMA). Then the stock sold off in response to the above news. ​This fired what now looks like a double-top pattern of bearish reversal with a downside pivot of $7.25.

Though the line was pierced at the time, it does appear that the 50-day SMA did come to the rescue at that time. Relative strength remains neutral to better than neutral. However, the daily MACD really is not giving up any clues. 

The histogram of the nine-day EMA is sitting right at the zero-bound. That's neither bullish nor bearish. The 12-day and 26-day EMAs are running together. Both are in positive territory, which is bullish, but if the 26-day line overtakes the 12-day line that would be bearish. I'm rooting for the 12-day EMA.

Updated Plan for ONDS

Target Price: $11.70 (reiteration) 

Upside Pivot: 21-day EMA (currently $8.50)

Downside Pivot: $7.25 (trough in the double top)

Add: Down to the November 21 low ($5.93)

Panic: Still the loss of the November 7 low ($4.95)

At the time of publication, Guilfoyle was long ONDS equity.