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Catch this Week’s Upcoming IPOs in Review on
Monday’s Show on Benzinga: 12:00 PM EST (Noon):
(I’ll send the link out tomorrow morning once I get it from the Benzinga team)
Last week was a great week in IPO trading, with some incredible profit opportunities, and more importantly, so key learning examples… so let’s jump into some analysis of how these played out.
Sono Group (SEV) turned out to be as hot as forcasted, with a debut price that made it a can’t-miss play. A prime example of an IPO that demonstrated social media hype, red-hot buzzwords, and a low float of just 10M shares: the real gift here was a debut price at just $20.06 up from an IPO priced at $15. One key indicator was the early indication test at $30, which showed strong demand, that was then steadily reduced to a more digestible opening price that left plenty of room for upside movement once it opened for trading. SEV quickly ran up into a halt at $22.84, opened at $23.40 and went into a second halt… for safe profits, I recommend exiting at least part of your position out of each halt. Halts indicate extreme volatility, and can halt back down just as quickly as they’ve halted up. I prefer to be selling on the way up than on the way down: partially so I can go enjoy the rest of my day, but also because we never know if the opening run will be the short-term high or just a benchmark to be broken on later highs. If you want to test the momentum on a debut, the profits can be handsome, but you also risk giving back all your wins (or even turning a win into a loss). So I’m generally looking to sell 30-50% of my position out of the first halt, and more out of any ensuing halts.
In the case of SEV, this strategy would have missed out on what became a euphoric run up to $40 right after the closing bell, and high of $53.97 in early pre-market.
So if you held into Day 2, you had the opportunity to take 100%+ gains, but if you held beyond that, you quickly saw your win percentage diminish with time: as SEV closed the week at $24.80.
Whenever you’re trading an IPO that goes parabolic, bear in mind how detached the price is from fundamentals: they tend to re-align rather quickly, and you want to be locking in extreme profits quickly.
Iris Energy (IREN) was relatively disappointing, but somewhat predictably given the drop in BTCUSD price in the days leading up to the IPO. The obvious hint that this one was going to drop off the debut was the heavy sell-side imbalance shown in the pre-debut ‘share balancing’, which showed that even at the IPO Price of $28, there were far more sellers than buyers. The mistake I made was thinking that this would correct off an initial drop, with a target of $30: which seemed reasonable given the opening debuts of other recent crypto miners. The stock dropped steadily throughout the day to a low of $21.46, before recovering to close around $24. I’ve decided to bag-hold this one, as like many IPOs that price at or below their IPO prices, they have a very good chance of recovering. If BTC comes back up over $65k and beyond, I expect all the crypto miners to move up accordingly, and this one, as a recent IPO with just 8M shares floated, stands to recover the few points I need to to move from it’s current price at $24.80 into a break-even or winning trade.
User Testing (USER) didn’t look strong from the start, debuting at $15.40 – below the IPO price at $16 with no real buzz or interest in social media, and other IPOs in play. It broke down to a Day 1 low at $13.32, can back up towards $14.80, but couldn’t get any momentum from there, and closed the week at $13.40. This may be a growing business, but without any retail demand, this was an IPO to avoid from the start.
Braze (BRZE) though somewhat comparable to USER, BRZE was clearly a more attractive company, with more recognizable names in its customer list, and clearly stronger demand. BRZE debuted well above it’s IPO price, which had priced above range, and while too expensive for my tastes given the other more attractive plays on deck for this day, it did offer a marginal win opportunity for those who bought the debut at $87.20 and sold either on the early run to $92.75 or the afternoon run up to $94.88. If you had really strong conviction in this trade, held it into Day 2, and were able to sell in the early pre-market, you could have exited at $106.00, but in reality the volume at that price was just 889 shares, so it’s not all that realistic to believe you were going to nail that price. Day 2 holders would have been punished for their greed, as it dropped hard off the open to a low of $82.34, recevered back up to $94, and then fell again even lower down to $80.45 before making a comeback on Day 3 to as high as $95… but clearly the bests win opportunity was on Day 1, and even at that, the margins for profit were hardly worth the relative risk or time management required to profit from this trade, especially given what SEV did.
Sweetgreen (SG) this is a great example of a prime IPO play opportunity that got overheated before it ever debuted. Given the success of BROS and PTLO, there was a lot of excitement over this IPO, and since the rest of the market was relatively pulling back on Thursday , a lot of day traders gravitated towards this name. It showed in the IPO pricing at $28: well above the $23-25 range, and IPO trader’s were collectively shaking their heads as the pre-debut indication price steadily rose from the mid-$30s to $40s, reaching a high point at $56 before opening the first trade at $51.70.
While there was some room to bank a quick profit on the opening run to $56, it was all downhill from there. I decided to give myself a day-off on this one, as personal life demanded my attention, but was watching from the sidelines as the price indications rose to over-heated temperatures. At $40 or less, I may have been tempted to jump in, but the heat in this kitchen was too hot, and though I did anticipate an brief upward run, I wasn’t at my desk and unable to dedicate the kind of attention that this trade would mandate.
A key takeaway from this debut is that when an IPO is over-hyped, and the debut price is near or at 100% of the IPO price, the initial retail demand surge is unlikely to be sustained. We saw this patter in the RIVN debut as well, and while it did rebound on a Day 2 media cycle, it opened, ran up for about 20 minutes, and then fell well below the IPO debut price. Keep this in mind when playing any blockbuster IPO.
KinderCare Learning (KLC) got pulled for filing issues, which is a bit rare: since usually they get pulled’ ‘due to market conditions’. Not gonna play this one anyway, but certainly a red flag for me when it eventually does IPO.
Austin Gold (AUST) pulled for market conditions and rescheduled for this upcoming week.
Snow Lake Resources (LITM) here we had another great example of a low-float IPO in a hot industry with a ton of social media buzz. As expected, the debut premium was high, as it opened at $11.50 from an IPO price of just $7.50, but this still left adequate room for retail demand to surge in and push LITM into a halt at $12.65 that opened at $13.80 for an easy partial exit to lock in some early profits. In the pre-debut indication process, prices in the $14-15 range were tested with heavy buy-side imbalances: so my target was $15, and was happily exited from my position on a run that would eventually halt again at $16.47 and open at $16.75 before topping out at $18.40.
At this point, it would be tempting to start making comparisons to the chart pattern we saw in SEV earlier in the week, and many traders were eager to reload their positions on LITM when it dropped below VWAP under $14. However, unlike SEV, LITM didn’t get a second wind, and a failed bounce back to VWAP topped out at $15, and then fell down as low as $11.35 before a slight end of day rally to close at $13.00 (and after hours trading brought it back down to $11.80).
A few lessons to learn here. One is that Friday IPOs tend not to have the same end of day runs as mid-week IPOs. Another is that not all IPOs that start strong will carry through to higher highs later in the day. And finally, this is why I prefer to take quick wins on the opening run: especially on a Friday. I get to close up early, and go into the weekend in cash.
There are times when an expected Day 2 run on an overnight media cycle make sense, but we tend to see those happen more often with brand name companies where there is a ton of media attention. Rivian was a prime example: everyone was talking about it, and the stock rallied for several days. I doubt that Snow Lake Resources will be talked about much over the weekend, and my Monday traders will either have moved onto other names that posted headlines over the weekend, or preparing to carve up their Turkeys.
Reminder: it’s a short week this week, and while there are some IPOs to trade, I expect volume to be relatively slow. There is a reasonable chance that we see a Stealth IPO sneak onto the calendar… so stay tuned. Otherwise, I wish you all a great week trading, and Happy Thanksgiving!
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.