Could you tell me how you come up with your target price on a stock. (February 5, 2003)
We look at several factors going into a play to determine the target price. Primary are support and resistance levels if any, but we also look at the type of pattern and the type of market we are in.
We always like to have a play that we can enter (upside or downside) and be able to make a nice 20% or so (on a stock play; more on an option play) before it hits that support or resistance level. That way it does not have to plow new ground for us to make our money and be very happy with the play. We can raise or lower our sights depending upon where that resistance is AND how far the stock typically runs on a move. If we are looking at options and trying to capture say a bounce up off the 18 day MVA, we look to see how far those runs usually are and we can target our option play initially as that run. Because options are time limited if we buy them, we often look at taking the gain on that move that is typical of that stock. On stock plays we can let it continue the trend higher, testing lower and then running again if we are looking longer term. We have stocks on the report right now that have hit the initial target but we are letting them continue to run as they rise, pullback, rise, pullback, etc.
Now if there is a breakout with no upside resistance, we will set an initial target around 20% in a 'normal' market. If it is upside, in a weaker market we often will lower expectations; making 15% over a relatively short period of time is fine with us. We will evaluate the move when it gets there and decide if we want to take the gain or let it ride further.
Strong, long bases with good accumulation that make the breakout we tend to let try to make that first 20% move in realtively short order. On some other bases such as an ascending triangle we may be satisfied with something less as the moves tend to be explosive out of the box.
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