#IPOs – A Great Year For “Dummies”

In the fervor of an initial public offering — an IPO — investors can easily get carried away.

After all, they are being pummeled with positive publicity by underwriters and brokers that this is it – the chance finally to buy into a latest, hot new company! But, in fact, unless one is some kind of insider or maybe a politician being bribed the first day of trading – the stock’s IPO day – is a crap shoot.

Take CRWD (Crowd Strike Holdings), which went public yesterday, as an example. The stock opened at 63.50, rose to 67, dropped to a low of 56, and closed at 58. A gambler might have a strategy to buy in during the day but at what point in that nine point chop does an investor make a safe investment? At no point.

The key to investing in IPOs is the first day’s price range but the buy comes after the first day as suggested in this post here: Buying IPOs for Dummies.

Following a “buying IPOs for dummies” strategy, CRWD is a buy on a close above 67.00 and at no other time. That’s when the initial fervor is over and there may be a worthwhile chance to profit going forward. Otherwise, the stock could drop through the low like LYFT did this year and keep on falling. Everyone who bought LYFT on its first day is losing money but those who did not buy are not.

How has this strategy worked this year so far?

With several companies, just great! SOLY is up 217%, SWAV is up 90%, BYND is up 86%, ZM is up 45% (see the charts below).

PINS is included here as an example of how defense can be played by both the long-term investors and swing traders. PINS rose 29% before falling back below the high of its IPO day for a loss of .9%. Disappointing for the investor, yes, but not catastrophic. Along the way, a trader might pay closer attention – at the bottom of the first big down blue bar on the chart at the right of the chart panel below PINS still had a profit of 17.2%. That would have been a good spot to take some, if not all, off the table.

(click on chart panel for a larger view)

#IPOs – when “dummies” should take the trade

And on the second day of trading an IPO, dummies discover why they should never buy on the first day of trading.

This is based on suggestion in this post:

Buying IPOs For Dummies

Don’t mean to use the term “dummies” in a derogatory fashion but sometimes it’s hard not to.

Over and over again, unless one is a real insider or being bribed for doing something else, or running some money-laundering scam that’s beyond me, anyone giving in to the hype surrounding an initial public stocks offering and buying before seeing which way it is going when its first day is done is plain and simple a dummy.

As said the link, this is one of the easiest trades in the market if one has persistence to follow an IPO and the discipline to wait for it reveal its direction before buying. Initially these stocks are difficult, if not impossible to short, so we’re talking only the long side here.

The keys to taking a position in a recent IPO are the high and the low in price on the first trading day (its “IPO day”). It is a buy on a close above the high of the IPO day. After the buy the high of that day becomes the stop loss level or the low of the IPO day becomes the stop-loss level depending on any individual trader’s or investor’s risk tolerance.

The trade is as simple as that.

See the chart panel below for examples. The top row of charts are recent successful IPO investments using this system. Each is set at a $10,000 investment to show both the money and percentage gains (the white flags on the lower right of each chart). As of today’s close, SWAV is up 46%, PINS up 11%, ZM .98% and SOLY up 133%.

In the bottom row are four IPOs from Friday which should not be in anyone’s portfolio…not yet at least – these second days are, as I said above, when dummies learn they never shoulda never bought any of these Friday.

Going forward, RRBI will be a buy above 58 and not before; SCPL above 18.75, ATIF above 5.10, and YJ above 18.20.

Simple as that.

(click on the chart panel for a larger view)

#IPOs for “Dummies” – $GOSS $ALEC $HARP UPDATED

This an update of this post below: IPOs on buys.

As outline in that post, all three of these recent stock IPOs were crossing the highs of their first day of trading (the “IPO Day”).

Once in the trade, stops, at the individual trader’s discretion, can be on a close below the IPO-Day high (which is what I would use), or if one has the patience and risk tolerance as far down as the low of that day.

The numbers in the white flags on the charts below are the gains per $10K invested in each stock. The numbers, at 10K, also correspond to the percentage gains (for instance GOSS is on today’s close up 12%).

(click on the chart panel for a larger view)

#IPOs – $ZKIN and others…

Today, let’s take a look back at a couple of recent stock IPOs and a new one on a buy from yesterday.

As has been stated in a previous post here, buying into an IPOs is actually one of the easiest decisions in stock investing but never let a broker con you into doing it the day of the offering.

Instead, note the high price and the low price on the first IPO is traded. Those are the lines in the sand or the Darvas box around the first day of trading (see the charts below).  The time to buy, invest, is on a close above the high of the first day with a stop loss below the high of the first day.  That is usually a low-risk trade since the real good news comes when the stock proves it can move up from all the hype surrounding the offering itself and if it falls back the stop to exit is close by.

Applying this to the newest offering here,  ZKIN (ZK Intl Group) would have created a buy on yesterday’s close (9/5) at 9.49 above its first day high of 8.68.  Today it closed at 10.27 up 8.2%.  The stop-loss is a close below 8.68 but with an 8.2% leap in profits already in the stock one might want to at least put in a break-even to avoid any loss.

These are purely technical signals.  I have no idea what that company does except it is Chinese.

To sum up the other IPOs here that have given recent buy signals, ZEAL is up 7.1% and RNGR is down 2.6% from its buy.  RNGR at 14.53 is close to its stopping point at 14.50.

(click on the chart for a larger view)

 

A $ZEAL for investors…

Investing in an IPO is actually one of the easiest decisions in stock trading but not on its first day.

But it is an IPO’s first day of trading that gives a clear look at when to buy the stock.  Simply note the high price and the low price on day one of the IPO. Those are the lines in the sand (see chart 0f ZEAL below). The stock is a buy on a close above the high of the first day with a tight stop loss below the high of the first day.

With ZEAL that buy would have been at 18.95 on the open of August 28 (after its close above the high of the first day at on August 25).  The stop loss is on any close below 18.69, the high of the first day.  ZEAL backed off for a couple of days and retested its breakout above the IPO-day high but did not trigger its stop loss.  Today it is, at the moment, turning up again at 18.90 (UPDATED: 18.80 on the close), again with a stop below 18.69.

This is an an opportunity for investors to buy and hold.  This is not for traders.  With a good-till-cancel stop loss order in, with very little short-term risk, it is a buy it and forget it with the hope it will appreciate over time.

(click on the chart for a larger view)