Lockup Period Expiration (LPX) Watch:
Most IPOs are subject to either 90 or 180 day lockup periods before insiders and shareholders who owned shares of a company prior to the IPO can sell their positions. Typically, the dilutionary effect of this event will cause a stock price to drop, as supply increases without any fundamental changes in the value of the underlying company. Many investors will wait for LPX before starting a long term position in a company.
Conversely, with low-float IPOs, we often see press releases and other announcements dropped going into, or slightly following LPX, presumably as insiders attempt to drive up the share price before they are able to exercise their warrants and sell their shares.
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Here are the LPX setups I’m watching to potentially patiently build positions.Most of these are previous Chinese Stealth IPOs sitting at relatively low prices. The risk here is that they are duds and don’t make any kind of run into LPX. Those at the $2.00 mark can relatively easily drop down to the $0.80 level, but we’ve also seen them run as high as $20+ (HUDI SOPA). The bigger risk is that they simply take too long to pan out and you end up watching them bleed out – once we get about 2 weeks past the LPX, you gotta manage your downside with stop-losses: ideally above entry, which is why I start patiently bottom-feeding on these a few weeks ahead of LPX.
We also see these sometimes take much longer than expected; see BEAT, which finally ran this past week or so: there were a lot of long-term bag-holders in that one that finally got an out – and holding past the initial pop-day is not as easy as it sounds.
Another approach is to simply be aware of these as potential LPX movers, and if you see one of them pop up on a pre-market scanner, check to see if there’s a news headline: even a fluffy PR drop can get these moving pretty hard.
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