Strategy on picking companies.
- Last year, all the NSE indices indicated a bears market, which provides an opportunity to buy shares on the cheap. In this, I looked for counters that have shown signs of reversal.
- For a reversal to have a quick turn around I argued it needed to have a comparatively less number of shares issued.
- The stock trades below listing price – market markers normally want the price to go above listing price to boost general market confidence.
- Share price must have hit below Kshs. 10 provide an opportunity for quicker bulls run.
Sameer Group (FIRE)
The technical analysis diagram below shows a reversal of lowest price began last year and a general upward trend has been archived. I utilize two indicators to gauge the strength of the trend, these are the Relative Strength Index (RSI) and Stochastic Relative Strength Index (Stochastic RSI). They both shows if a stock has reached saturation level (oversold) and prices are unlikely to go further down.
Next is to evaluate the opportunity using a risk-reward ratio. Given the price swing of the previous year the only realistic risks-reward ratio achievable in a month is 1:1 – meaning there’s a chance 50% chance I could win the trade and a 50% chance I could lose it. This is indicated in the green shading in the diagram that captures my take-profit level and stop loss level. I put the BUY order for the stock yesterday at
KenGen like Sameer has a positive reversal trend. The listing price in 2006 was Kshs 11.60 and the share yesterday traded at Kshs 7.60 – good room for upward gains. But My take-profit level is at 9.50 which gives me a risk-reward ratio of 1:2 going by previous support and confidence levels. Today’s trade proves the trend (bingo!)
Longhorn Publishers (LKL)
Well, I decided to take a look at this counter when I read in the newspaper that book prices have gone up. Given it the begin of the year, book publishers stand to be profitable hence attractive to investors. I dived into the technical analysis to check if the theory is supported.
Longhorn shares debuted at Kshs. 20, currently trading at 4.85, the trend is bullish – today trades at 5:00 (good). The risk-reward is quite good. So, my portfolio is not doing quite bad. I’ll revisit these trades at the end of the month.