Well, sometimes we look at a low-float IPO sponsored by a notoriously dubious underwriter, with clear connections to China, and assume it will be a Stealth IPO… and every once in a while, we’re flat out wrong. Which is fine, as long as we maintain discipline owand pay attention to the pre-debut imbalance pricing. This is why experience is so valuable in trading IPO debuts, and why we were able to avoid disaster on last week’s sole IPO.
Another strategy we’ve discussed in terms of trading IPOs, especially the lesser-known, low-float debuts from second-tier underwriters, is the “LPX play” (Lockup Expiration). The theory behind this setup is that shares, and often times warrants, of these companies are locked up for a period of time following the IPO: typically 90, 180, or one year from the IPO, and we often see headlines announced in conjunction with these timelines that cause massive spikes in the price of these stocks. In most cases, the prices of these equities have declined significantly since the IPO, leaving the exercise price of these locked up shares/warrants a far reach from the strike price. It therefore seems less than coincidental that we see Press Releases dropped around the time of these LPX events that produce runs that often top out just beyond the exercise prices. While this is by no means a ‘rule’ – and we certainly don’t see spikes in all recent low-float IPOs, we did see quite a number of them run last week, including AERC, HTCR, MTEK, and BJDX… if you want more insights into this trading strategy, I highly recommend that you follow https://twitter.com/tradingfitgirl
Ok, Let’s take a look at what happened last week in IPO Land:
Phoenix Motors (PEV) – June 8, 2022 | 2.1M Shares
IPO Price: $7.50
Debut Price: $6.50
Day 1 High: $6.50
Day 1 Low: $4.01
High Since Debut: $6.50
Low Since Debut: $3.11
Day 1 Action: I’ll be the first one to admit that this one had me fooled… the underwriter, the shape of the offering, rumors of a large allocation to a Chinese battery manufacturer, and clear connections to China gave this one the outward appearance of a Stealth IPO. By the time we saw the pre-debut imbalance, however, it was clearly not the setup we were looking for, and we were able to avoid taking anything more than an attempt at a reversal off the opening drop (which failed to materialize, but let us out without any real damage done). Given the full allocation on IPO share requests made through WeBull, this was rather expected.
After pricing the IPO at $7.50, the pre-debut imbalance showed us pathetically dismal demand, with pricing starting in the low $3.00 with only gradual increase into the low $4 range on roughly 150k shares: also not a great setup. It appears that the underwriter tried to save the debut, with an opening bid driven up to $6.50 before the open, but the result was a mass sell-off that drove the stock down to a halt at $5.85 that opened substantially lower at $5.26 and continued down from there: halting again a few minutes later down at $4.22. The bleeding wasn’t done from there, though it opened from the halt with a green candle that peaked at $4.70 before reversing down to the low of the day at $4.01. It then baselined around $4.50 for most of the day, but failed to produce any upside momentum, eventually capitulating to shorts and panic sellers to close Day 1 at $4.05.
Suffice to say, retail got fully shafted on this one: a prime example of why it’s not a wise strategy to request more than a minimal allocation on IPOs offered by WeBull: for the good ones, they don’t give us many shares anyway, and on the bad ones where they give us full allocations, the results are typically disastrous.
Day 2 Action: The Day 2 Rally trade on low-float IPOS seems to have disappeared for the time being, as we have not seen this setup materialize for several weeks now. PEV opened down on Day 2 at $3.90 and proceeded to drop to just under $3.65 before attempting a rally back up to $3.95, but from there it simply gave up and steadily declined to close the day at $3.36. A complete bust as far as IPOs go, and we hadn’t even seen the lows on this one for the week.
Looking Ahead: I’m not sure how far down this one can descend, but Friday brought it down to further lows at $3.11, with volume reaching a pithy 299k shares. While this really shouldn’t be surprising given the general weakness of the company itself, for a low-float IPO to do this poorly with no pumpers or inside manipulation to give it any spike whatsoever has been somewhat rare. Do we get a spike at some point? I would expect so, but given that the bottom could be much lower before we see any run, I’ll be putting this one on watch for a headline rather than try to accumulate any kind of position prior to the run.
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LAST WEEK’S RECENT IPO RUNNERS
Last week brought us deluge of recent low-float IPOs that ran on PR drops, here are a few that stood out:
AeroClean Technologies (AERC)
Type: OTC Uplist
IPO Date: 11/21/2021
IPO Price: $10.00
LPX Date: 5/23/2022
Float: 4.06M Shares
Closing Price Previous Week: $2.37
High of the Week: $15.25
Headline: Purgo Air Purification Device Gets FDA Clearance
Recap:
AERC was debuted its IPO the day before Thanksgiving, and after pricing at $10 per share, proceeded to open at $40.00 and ripped up to a high of $117.35 through a series of halts. It since had descended to a baseline around the $2 mark until this headline sent the share price on a multi-day run well above the $12.50 exercise price on insider lockups.
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HeartCore Enterprises (HTCR)
Type: IPO
IPO Date: 2/10/2022
IPO Price: $5.00
LPX Date: 5/11/2022
Float: 5.44M Shares
Closing Price Previous Week: $1.09
High of the Week: $3.19
Headline: Board Authorized Up to $3.5M Share Buyback
Recap:
HTCR was a disastrous IPO as far as debuts underwritten by Boustead Securities go, and they were desperate to get insiders and pre-IPO investors out from their $2.50 buy-in point. This news event seems a bit contrived, as there is no obligation to actually follow through on the buy-back, but if they do actually repurchase the full $3.5M worth of shares, and follow up with a subsequent news release of substance, we could see a liquidity trap that surges the price even higher. Otherwise, this one will likely go back to sleep soon.
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Maris Tech (MTEK)
IPO Date: 2/2/2022
IPO Price: $4.20/unit
LPX Date: 5/3/2022
Float: 4.11M Shares
Closing Price Previous Week: $1.17
High of the Week: $1.60
Headline: Contract with Israeli Defense Company for $300k
Recap:
MTEK has been trying to pump their share price since they announced a $1M buyback at the beginning of the month for $1M shares, following that PR drop with an announcement of a $300k contract from an Israeli defense company. This headline failed to produce a sustained run, but if the price consolidates back down around $1, I expect more upside to follow on the next headline.
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Bluejay Diagnostics (BJDX)
IPO Date: 11/10/2021
IPO Price: $10.00/unit
LPX Date: 5/9/2022
Float: 11.36M Shares
Closing Price Previous Week: $1.00
High of the Week: $1.83
Headline: FDA Agrees to De Novo Pathway to Approval for Lead Drug Candidate
Recap:
Many traders have been accumulating and waiting for BJDX to run, and this headline likely gave many long term holders enough of an upside to dump their positions for a profit. The headline wasn’t all that meaningful, and the price action reflected this with a quick return to close the week at $1.20. This one will likely languish for a little while longer until substantial news arrives for FDA approval. No reason to jump into this one for a while, but will keep it on watch for future headlines.
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Marygold Companies (MGLD)
Type: OTC Uplist
LPX Date: 08-Jun-22
LPX Period: 90 Day
IPO Date: 10-Mar-22
IPO Price: $2.00Exercise Price of Common Shares: 120% list price equal to $2.40
Secondary Offering Exercise Price: S-3 29-Apr-22 Effect 12-May-22
RECAP: ran to EP in pre-market on June 3rd
Notes: states a 180-day LPX for Dir & Ofc
– Reference 424B4 Filed 11-Mar-22
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Marygold Companies (MGLD)
Type: OTC Uplist
LPX Date: 08-Jun-22
LPX Period: 90 Day
IPO Date: 10-Mar-22
IPO Price: $2.00
Exercise Price of Common Shares: 120% list price equal to $2.40
Secondary Offering Exercise Price: S-3 29-Apr-22 Effect 12-May-22
RECAP: ran to EP in pre-market on June 3rd
Notes: states a 180-day LPX for Dir & Ofc
– Reference 424B4 Filed 11-Mar-22
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Cingulate Inc. (CING)
Type: IPO
LPX Date: 06-Jun-22
LPX Period: 6 Month
IPO Date: 08-Dec-21
IPO Price: $6
Exercise Price: $6 & $7.50
RECAP: hit low at 1.01 on 26-May-22 and has reversed to 1.40’s
Notes: 424B4 20-Apr-22 selling sh for warrant exercise at $6
– Reference 10Q filed 12-May-22, 424B4 filed 20-Apr-22
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IPOs that hit 180-day LPX dates in the last 30 days, but have not run to EPs
Check date if there’s a secondary offering, as these take longer to run
STRN – EP $4.81 – $5.18 *has secondary
BEAT – EP $6
TIVC – EP $6.25
For a full list of IPOs and Uplist LPX dates and video reviews https://tradingfitgirl.net/always-learning for the direct Spreadsheet Link
