Everyone's eyes on the price, but what is it? [Part 3]

Deriving the YZJ Spin-Off Price: A Reality Check on Momentum

*Disclaimer* It is worth noting also that my overall average price has increased from the previous post as I have bought even more shares recently

In the first two parts of this series, we established a foundational framework. Part 1 introduced the idea that in a strong uptrend, a stock’s price action respects its short-term moving averages, particularly the 5-day (MA5). Part 2 expanded on this, proposing that as we approach the spin-off date for $YZJ Fin Hldg(YF8.SI)$ the MA5 will act as a proxy for the market's converging consensus on the final spin-off price.

This brings us to the critical question: How can we stress-test our own price targets against this framework? It’s one thing to have a target price; it’s another to determine if that target is grounded in reality.

Let's put this theory into practice. Suppose, after our own analysis, we set a conservative target price of S$1.30 for YZJ Financial on the spin-off date. The question immediately becomes: Is this price plausible? Why not $1.40 or even higher?How can we build conviction that the path to $1.30 is not just wishful thinking, but a mathematically feasible trajectory?

This is where we connect our market theory to the hard numbers. If we assume the MA5 will converge with the final price, then on the spin-off date, the MA5 should be at or near S$1.30. We know the MA5 today, and we know the number of trading days remaining. With these three data points, we can calculate the required "momentum velocity" - the average daily increase the MA5 needs to achieve our target.

As of this writing, with approximately 44 trading days left until the spin-off, the MA5 for YZJ Financial stands at roughly S$1.09.  

Target MA5: S$1.30

Current MA5: S$1.09

Total Increase Required: S$0.21

Trading Days Remaining: 44

The required average daily gain for the MA5 is therefore: $0.21 / 44 days = ~$0.0048 per day

This means for the stock to plausibly reach our S$1.30 target, its 5-day moving average needs to climb by an average of just under half a cent each trading day.

At first glance, this seems entirely achievable. For a stock that has demonstrated significant upward momentum, a daily climb of half a cent feels like a stroll in the park. But this is where a deeper analysis is required. The ease of this calculation raises a more challenging counter-question: If this momentum is so easily attained, why shouldn't our expectations be higher? If the stock can manage half a cent a day, why not a full cent? That would imply a much higher target price.

Stock chart of YZJ Fin Hldg

What forces, if any, are acting as a governor on this momentum? And how do they inform our final price target? We will explore these crucial factors in our next post. *It is worth while taking a look at the rate of change of MA5 in the above image.