Today we will look at Fajarbaru and how a potential trade setup can be structured. To the untrained eye, the chart may look uninteresting and uninspiring. However, if one looks a little deeper and compare similar chart setups, you can see the potential returns that can be achieved from this trade setup. 

The 3 stocks which we will examine to see a similar setup are:

1) Hextar Global Bhd

2) KGB Bhd 

3) Kobay Technology Bhd

The premise for this trade setup:

1) A big gap was created in the chart as a result of a bonus issue or rights issue

2) The stocks were in a medium term uptrend trend before the gap was created

3) The companies are all fundamentally solid(at least from a profitable point of view) prior to the bonus issue/rights issue

Case study 1: HEXTAR GLOBAL BERHAD

Hextar Global went through a bonus issue exercise of 3 new shares for 5 existing shares on the 24th of June 2021. As u can see from the price chart , that created a big gap down price from 1.6 to 0.98 on the chart. Prior to the bonus issue hextar was already in a solid uptrend and even hitting a multi year high of 1.8 on 30th April 2021  After the gap down on the chart Hextar has not only closed a huge part of the gap on the chart but adjusted for the bonus issue has actually exceeded the previous high price point before the bonus issue! 

Case study 2: KGB BERHAD 

KGB went through a bonus issue of 1 new share for every 1 existing share with 1 free warrant on 1st July2021.Hence a big gap on the chart was created.  KGB was also performing very well prior to the bonus issue and hence the gap created a fantastic buying opportunity as the gap was eventually almost closed. Today KGB is already trading at an all time adjusted high price!

Case study 3: KOBAY TECHNOLOGY BERHAD 

Kobay went through a bonus issue of 2 new shares for 1 existing share on28th May2021and created a big gap on the chart. Prior to the bonus Kobay was already in a nice uptrend and after the bonus issue the price not only closed the gap but eclipsed the previous highs to astronomical heights!

The case for FAJARBARU BUILDER BHD

Fajar undertook a 1 for 1 rights issue on 10th Oct 2021creating a big gap in the chart. Prior to the price adjustment due to the rights issue, Fajar was already on a medium term uptrend and even hitting a 52week high of 0.87 just 4 days before the exdate.  So if we extrapolate the possible price patterns from the above case studies we can deduce that Fajar has a potential to make pretty good returns if it closes the gap on the chart either partially or fully. Given that this setup would yield a good return over a medium term horizon i would like to enter this trade at the current price of 0.395 and let it play out in a 3 to 6 month horizon. A stop loss level of 0.325 could be set for a potentially rewarding risk to reward trade targeting the 0.6 to 0.8 level!

Conclusion

I would give this trade some time to run its course and would revisit the trade in 3 to 6 months for the best results. Nothing is guaranteed in trading but we can set up trades that have the highest probability of success tilted to our favour! I will share more trade setups that I use in the weeks ahead. Stay tuned and happy trading!

Disclaimer: This blog is created for sharing of trading ideas only. It is not in any way or form meant to be an inducement or recommendation to buy or sell any stocks.Consult your financial consultant before making any financial investments.