The Stock Bandit's IPO strategy

Source http://www.thestockbandit.net/2006/10/18/ipo-trading/


Earlier this week in the Free Newsletter (sign up in the sidebar at TheStockBandit.com) we discussed trading IPO’s, but let’s go a little deeper.

IPO’s are making a comeback these days in the market. With the indexes climbing steadily higher, new issues are garnering attention as sexy trading vehicles once again. Back in the day, trading IPO’s was a wild ride which everyone wanted in on. The trading world was fully aware of what was due to begin trading on a given day, and you were sure to find some heavy action in those stocks once they opened and for the first few days of trading.

Times have changed, and so have the ways which IPO’s are being traded. It’s a given that today’s IPO’s are a far cry from those of 1999 and early 2000, so naturally that means they require different trading methods.

I’m a big proponent of monitoring the “personality” of stocks before I trade them. How else can you set your expectations for how a stock will move, where to place your stops, and how aggressively to trade them?

There are still some great moves out there taking place in IPO’s, but generally I’m finding the best moves are secondary rather than the primary (or initial) move.

The way we trade IPO’s at TheStockBandit.com is to let them make their initial moves, settle down a bit, and get set up for a secondary move. I like to see IPO’s trade for a few days so that I can get a feel for how they’re moving and what kind of volume they have (what is the overall interest in this stock?) and then take them for a trade on a secondary move.

Many IPO’s will have some initial excitement and then begin to consolidate. Volume falls off and the stock moves horizontally, creating a base from which a secondary move can launch. The majority of the time these bases come in the form of a bull flag pattern, a cup and handle pattern or a bullish ascending triangle, and that makes it very clear what the pivot point should be for getting long. Let’s look at a few examples of IPO’s which fit the description.

CVLT (Click image for full size.)

RVBD (Click image for full size.)

HBI (Click image for full size.)

DIVX (Click image for full size.)

BARE (Click image for full size.)

There are a ton of ways to profit in the market, and swing trading IPO’s as they emerge from traditional chart patterns is one of them. We trade some of these at TheStockBandit.com, and even if you’re on the free trial I’ll show you what I’m seeing in the charts and outline my trade parameters along the way. If they fail, my bail out will be close by thanks to the pattern, so it’s no big deal. And if they work, well it’s blue sky above and there’s no telling how far they might run!

Jeff White
President, The Stock Bandit, Inc.

StockBee's IPO strategy.

Source: http://stockbee.blogspot.com/2007/07/how-to-trade-ipos.html

25% of the stocks in Double Trouble universe have IPOed in last 2 years. Trading IPO's can be profitable for variety of reason. As the universe of stocks to watch in IPO is small, it is easier to catch such IPO's. There are 3 traders I know, who only trade IPO's. By specializing on a narrow segment of the market they get in to all good IPO moves.

Recently I had lunch with one such trader, she had 90% return last year trading only IPO's. There is another trader who specializes in trading IPO's and is regular reader of the blog. From time to time he keeps sending me detailed analysis on IPO's and which one are likely to move. After chatting with these IPO specialist I have learned a lot on trading IPO's and has incorporated their learnings in to trading. One of them has requested me to incorporate IPO as subsection in Opportunity Buffet and which I will do in a day or two.

So what works in IPO's according to these veterans and my experience:

1 IPO's with good earnings or sales growth. This is number one criteria to look for. If an IPO has good IBD ratings I pay special attention to it.
2 IPO underwritten by Goldman Sachs, Morgan Stanley, Merrill Lynch or Credit Suisse
3 IPO's which IPO during market weakness. They really do well. Because unless the company is really solid, who would buy during market weakness. e./g. companies like Coach, it IPOed in the darkest period and went on to great height.
4 IPO's which do not go down more than 35% below first day trading close
5 IPO's with spin offs

The best way to trade IPO is by just running a simple 4% plus breakout scans.
(100*(c-c1)/c1)>=4 and v>=1000 and v>v1
Generally breakout on IPO's have follow through.

The IPO's which do not do well in first year become part of my Virgins strategy.