Time to reckon with Reckon

Print This Post A A A

Reckon is an information technology business that has been undergoing a transformation in its core products over recent times.

This shows clearly in its share price, which has tracked sideways over the last two and three-quarter years in a range between $2.00 and $2.70.

A robust past

Reckon’s strong financial performance, that took its share price from 85 cents late in 2008 to $2.74 in early 2011, is still in tact, despite the product and service transformation that it is undertaking.

During this phase of price consolidation, a strong support zone has formed between $2.00 and $2.08, shown on the chart by the lower blue rectangle.

This coincides closely with a 38.2% Fibonacci Retracement at $2.02.

A weaker support/resistance zone has also formed between $2.21 and $2.27, shown on the chart by the upper blue rectangle. This coincides closely with a 23.6% Fibonacci Retracement at $2.29.

Source: Beyond Charts

The big picture view is that the Reckon share price rose by more than 200% over two and half years and has now consolidated with a 38.2% Fibonacci Retracement over two and three-quarter years.

Time to get in

Technically, the Reckon chart is poised for a potentially low-risk high-reward position. Being close to a strong support zone, an active investor with a medium term horizon could place a stop loss at around $1.95, just below the support zone. This would represent around a 10% loss if the share price should fall to that level.

The placement of the stop loss is to protect one’s capital should sentiment turn negative towards Reckon for whatever reason. The stop loss is placed just below the strong support zone, in recognition that there would be a high probability of Reckon’s share price continuing to fall lower should it break below the support zone, at least to around the $1.80 level in the first instance, and, possibly, lower thereafter.

On the upside, the Reckon share price could move towards its previous all-time high around the $2.70 – $2.75 zone, representing a near 30% profit, or a 3:1 reward to risk.

Those with a longer-term view may look to an even higher share price should Reckon management be able to continue the financial performance that they achieved in the past. This would become evident if the Reckon share price broke out to a new all-time high above $2.74.

Either way, Reckon’s current technical and fundamental setup supports taking a 10% risk, or lower, at an entry price between $2.00 and $2.15 to maximise upside potential.

Gary Stone is the founder and managing director of Share Wealth Systems.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

Also in the Switzer Super Report:

Also from this edition