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IPO Trading Review for the Week of September 5, 2022

September 12th, 2022

The IPO market saw one debut last week that demonstrated what happens when a deal is almost entirely booked by retail flippers. It still managed to debut at a nice premium, though far short of what hopeful allocation recipients had been dreaming of the night before, and it even delivered a nice upside move on the opening volatility, showing that day traders are,or at least were, eager to jump into anything IPO related in this market. But clearly, the fever pitch that has surrounded IPOs ever since HKD ran to absurd levels in early August it getting to a point in the cycle where these setups are getting frontloaded: and that’s when a trade setup starts to get washed out.

Of course, I had said that after ONFO and JFBR failed to produce any upside value for IPO buyers, and then ATXG reset the whole cycle with a run that matched HKD’s historic ascent int a single day of trading. So there’s nothing to say that we can’t see more pyrotechnics come to market in the near future – but we can see that underlying fundamentals can be simply tossed out the window.

We are also starting to hear news of several mainstream IPOs entering the pipeline: an indication that the market may be poised for a bit of stabilization or even a turnaround – bulge bracket banks tend to coordinate large scale IPOs with upswings in the market, and the more established underwriters are likely feeling a bit of pressure to get some deals done before the end of the fiscal year.

So we should expect a healthy dose of IPOs over the next few months – there will almost certainly be some low-float IPOs that rip, but I expect that as the cycle gets played out, the more ‘normal’ ones that are taking advantage of this hysteria to dump shares on retail traders will begin to fail. I’ll be digging deep into the deal structure and hustling behind the scenes to gather as much ‘color’ as I can to best identify the potential runners, as well as which ones are best avoided, and allocating risk accordingly.

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Ok, Let’s take a look at what happened last week in IPO Land:

Yoshiharu Global (YOSH) – September 9, 2022 | 2.9M Shares +1.31M Shares Offered by Existing Shareholders
IPO Price: $4.00
Debut Price: $5.20
Day 1 High: $6.50
Day 1 Low: $3..88 (after hours)
High Since Debut: $6.50
Low Since Debut: $3.88

Day 1 Action: This deal may have actually suffered from having too much focus on it for too long, as every day trader and IPO flipper in the market had keyed in on it and gone in for relatively heavy allocations (at least, far heavier than they would have for this kind of business and this kind of IPO). With so much demand, the first thing the underwriters did that weakened the potency of this deal, at least from day-traders’ perspectives, was to add 500k shares to the float in a last-minute upsizing of the deal. At least they left the price down at the low end of the scale, as it priced at $4.00, leaving plenty of room for a debut premium.
Despite delivering the highest volume of shares traded in the opening minute of any of the low-float IPOs we’ve seen come to market since the HKD Event, with over 1.5M shares exchanged in the first minute of trading, YOSH managed to debut at $5.20: a relatively tame debut, but there was a time when making nearly 25% in an instant by dumping IPO shares at the debut was considered a nice profit.
The stock dropped slightly off the opening print, hitting as low as $4.48 in the opening minute, before rebounding into a halt at $5.42. I had suggested “laddering down” as an entry strategy on my live stream: an approach whereby you set a series of limit orders below the debut price to build better cost basis off the opening drop, in order to capture additional profits on a rebound. This would have been an ideal method of establishing a debut trade position at or below the $5.00 mark, which would have sweetened any gains taken on the ensuing reversal.
I had added to my IPO allocations on the debut, and sold out of most of my positions on the opening of the first halt up – exiting at $5.98: not a home run, but enough to close out a decent win on an IPO trade that I considered to have little downside risk as both an allocation or as a debut trade.
The stock would climb ouf of the halt to a high of $6.50, halt down wards to open and drop as low as $5.05, snap back up to $6.15, and then begin to fall-off: stepping through a series of knives down to a bottom at $4.16: still keeping its head above water for IPO buyers.
On the live trading stream, I mentioned that there was a high likelihood that this would rebound to VWAP at some point, so any bag holders should consider that opportunity as a good time to exit with minimal to no damage – by the time it did, VWAP had dropped to $5.31, and the stock managed to just barely break that mark at $5.39: still, for debut traders who picked hopped in at $5.20, they were given ample opportunity to exit with a non-loss, and savvy traders who found themselves stuck underwater, could have reduced their cost basis to realize even a small win out of what had become a losing situation.
Once it touched VWAP, the momentum died, and YOSH spent the rest of the day trailing off to a low at $4.11, before closing at $4.17, and dropping further in after hours to as low as $3.88 – a drop that saw the share price break below issue for the first time since YOSH debuted. Over 21M shares were traded on Day 1.


Day 2 Action: Day 2 is Monday.

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