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IPO Trading Review for the Week of Dec 6, 2021 – Dec 10, 2021

December 10, 2021

IPOs resumed this week, though the market was tentative and action was minimal, there were still lessons to learn and profits to be made for those who ventured to trade these debuts.

Let’s recap:

Chicago Atlantic RE Finance (REFI) did not provide much action, as expected of a finance play. Debut at $16.40, dip to $15.80, and then reversed up to $17.00 before trailing out to close Day 1 at $16.49. Has trailed off into the close of the week, but still above $16. Not really the kind of volatility I look for in an IPO debut trade, and why I was not interested in this one from the get-go.

Cingulate (CING) followed the trend of most of the recent low-float biotechs, and debuted at $4.50 and pretty much dropped out from there, with a Day 1 bottom at $4.00 with only a minimal rally at the end of the day to $4.50. It has since trailed out below $4.00 and is likely to continue downward to the $3.00 area. Many of these have made substantial runs in the weeks/months following their IPO on any kind of news headlines, so worth keeping a list of these handy for lotto plays once they dip below $3, but you should consider these to be very speculative plays, and be ready to sell the rip, as follow-up offerings are almost a certainty.

HashiCorp (HCI) was the only real winning setup of the week, as we had forecast, but the pre-debut indication pricing did not portent high demand, and with the market on edge, with fears of the pending inflation number announcement coming the next day, this one seemed a bit too risky to jump in on with such a high ticket price. Nonetheless, it debuted at $81.16, and initially ran to a high of $89.50 with no major retracement, setting up what could have been a relatively stress-free trade with a trailing stop loss. It quickly reverted, but held VWAP at around $83, and despite a tepid market, was able to muster a Day 2 morning run to a new high of $90.74 before backing off to it’s current price at $84.72. We have generally seen these kinds of high growth cloud/SaaS stocks debut with high premiums to their IPO pricing, so on one hand, this one could be seen as a great deal to have been able to buy at just $1 above the IPO price, but given that we saw it test $80 with a sell-side imbalance for much of the pre-debut indication period, I decided to go risk-averse and passed on this one.

Nubank (NU) Again, we saw what happens when even a very hot, popular name debuts with a massive float: not much, and mostly down initially. NU debuted at $11.25, and after a short-lived (1 min) jump to $12.22, it fell off quickly to a Day 1 low of $10.01 and closed the session on Day 1 at $10.33. The Day 2 media cycle kicked in and brought the share price back up as high as $11.98 in pre-market, but it again sold off on the open down to $9.80 (though in fairness, so did the whole market on the Fed Inflation numbers). It has since regained form on a run to $11.73, but at this point, is a day-traders game, and not something I felt like being involved with from the start. For the most part, large floats are not great IPO debut trades, and this float was enormous (290M shares + 46M in underwriter overallotment options).

NeuroSense Therapeutics (NRSN) Again, low-float biotechs, especially those with warrants involved, have not made strong debut plays for a couple months now. Debuted at $4.55 and pretty much fell throughout the day with very little opportunity for even a bottom-dip play (swinging a trade from $4.05 to $4.45 is not a trade I’m out looking for: I’m looking for debut runs that ideally present the opportunity for fast profits off the open, and possible Day 2 runs on an overnight media cycle. Little known biotechs have no reason to run, and while we saw a few examples of these that ran earlier in the year, they are now ‘dime-a-dozen’ and have been played out. There does appear to be a trade on these if you are willing to wait for them to dry out a bit, be patient and accumulate down below the $3 level, and wait for them to announce an FDA advancement. These are very binary plays, and there are plenty of examples of ultra-low-float biotech IPOs that have sunk well below the $1 level, so be aware of the risks. And if/when the headlines DO hit, don’t be greedy: those who played KTTA were rewarded for their patience if they sold on the first day it ran, if you were greedy and held into Day 2, you were hit with a huge drop in price when the company announced a follow-on offering. No surprise there.

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So yeah, not an easy week for trading IPOs, and given the expected turbulence in the market over the next week, I’m playing things relatively safe and holding cash… having said that, there is at least one VERY EXCITING IPO slated for next week, with an ultra-low float and an underwriter known for delivering explosive IPO debuts: this one has ‘to the moon’ potential (quite literally, or at least ‘among the stars’). Good luck out there.

NOTE: this is not financial advice, and I am not a financial advisor: this information is just my opinion and is for informational purposes only. I may have or take positions in the equities mentioned in this article in the next 72 hours. Trading equities is risky. Do your own research,and trade your own trade.

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