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IPO Warriors IPO and LPX Preview for August 15 – August 19, 2022

August 16th, 2022

Just when I thought we may have reached the peak of the low-float IPO hype cycle, MEGL managed to be resuscitated, FRZA ran back into double digits, and even REBN and CHG made short lived pre-market runs. On top of all that, at least two new targets have emerge as “the next HKD/MEGL/TGL”… as the list of successful debuts grows, the mentality amongst day traders that these setups are inherently going to rip once they start trading becomes further entrenched. As long as there are more traders willing to pile into these trades than traders who know how to get in ahead of the crowds: either by getting allocations of the actual IPOs or buying the debut on the opening print before most unfamiliar traders are even aware of what’s happening, and said crowds then follow en masse: then the trade will continue to produce at least one surge to the upside.

But if this hysteria continues unabated, at some point we’re going to get a debut price that is too rich for the “second wave” of traders to stomach. That there were substantial buyers for MEGL at $100, $160, and even $235 was pretty shocking: then again, when the ceiling for HKD was $2,555, perhaps it shouldn’t be all that surprising. As long as there is actually a constrained float behind a deal, then we can expect the limited number of tradable shares (in addition to the low float) to provide the huge supply/demand imbalance that triggers these runs. It’s doubtful that we see another HKD, simply none of the upcoming deals are going to be handled the same way, and because short sellers aren’t likely to get baited into another disaster scenario, and also because unlike HKD, everyone is piling into these trades on the front-side. But we are still likely to see high debut premiums, high volatility in IPO debuts, and opportunities to capture significant profits on well-executed trades. But as we’ve seen in some of the more recent debuts, the potential for significant downside clearly exists, and recognizing the underlying structure of the IPOs that are more likely to succeed is critical in trading this environment.

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This Week’s IPOs:

  • Innovative Eyewear (LUCY) – August 15, 2022 | 980K Units

  • PaxMedica (PXMD) – August 19, 2022 | 1.545M Shares

  • Gigacloud Tech (GCT) – August 19, 2022 | 2.45M Shares

  • Starbox (STBX) – looks like it’s actually next week after all.

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Ok, Let’s jump in:

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