One is most likely just a low-float play, the other, has the marks of a Stealth IPO.

Ok, so over the past few weeks we’ve had a number of blockbuster IPOs – some have done well (DNUT, DOCS, even S in the last two days) ; while others have been busts (looking at you DIDI)… for the most part, we’ve done pretty well on picking the winning mainstream plays and avoiding the losers.

But the wins on these trades have been nothing compared to the win opportunities given on the low-float and ‘Stealth IPO’ trades: BON, VRAR, and of course, CPOP: all provided massive upside potential.

So why do these Low-Float trades often open into immediate upward halts, and what makes a ‘Stealth IPO’ different than a just a small IPO with a low number of shares?

The Low Float IPO:
While IPOs are generally seen as a way for a substantially developed private startup to take the big leap into the world of publicly capitalized finance, we often see instances of smaller companies looking to raise relatively smaller amounts of capital for a relatively diminutive valuation. Perhaps it is to raise capital, or to provide liquidity for investors, founders, and early employees.

While there are rules that govern the minimum share price ($4 for the NASDAQ) and number of shares offered (1.25M also NASDAQ), as long as the company fulfills these along with other filing requirements, they can go public.

Historically, most low-float IPOs debuted with little notice and little trading volume, but recently – thanks to a growing interest by retail traders in meme/hyped stocks, and social media personalities {ah-hem} putting a spotlight on these trades, we’ve seen interest in low-float IPOs provide instant demand that results in immediate spikes up in the share price of these stocks once they debut.

In most cases, the upward momentum is rather short lived: a couple of upward halts, followed by a rapid townturn, and a fade-out back to the original IPO price and the stock gets forgotten about until perhaps it posts some meaningful headlines in the future (and then it’s GAME-ON again… ALF !)

In some cases, we’ll see the low-float debut run sustain a full day run: with a run-up at the end of Day 1, and perhaps a spike in Day 2, but this depends largely on whether social media buzz catches on and this depends largely on whether there is any ‘story’ behind the stock that makes in seem interesting for a potential long term hold (VRAR last week was a good example of this).

The ‘Stealth IPO’, and why it’s a different animal:
On the surface, the Stealth IPO looks very similar to the low-float IPO, in that, it’s some random business model that is raising a small amount of money with a low float. But there appears to be something very fishy going on with these plays that result in IPO debuts that have jumped 500-1000% or more over several days; indicating that this isn’t simply the workings normal market conditions.
Something is clearly going on here, and while I care less about the potentially nefarious motivations of the company or its underwriters, I do aim to uncover these opportunities prior to their debuts and to profit from their explosive runs.

I have two hypothesis for what mechanisms are driving these Stealth IPOs, and perhaps they are some combination of both (or perhaps I’m way off), but we do tend to see these truly stratospheric runs have a number of traits in common:

1. They are typically announced mid-week, with little to no publicity, and appear to be intentionally hiding their IPO from public announcement.
   

2. They are almost exclusively held by companies whose operations are in China.
   

3. The underwriters are often amongst a small handful of financial firms that appear to be at least loosely, if not directly affiliated. Namely, Boustead Securities, Sutter Securities, and Network 1 Financial.

Hypothesis #1: These are simply ‘Rug Pull’ operations where the company (or underwriter, or affiliated 3rd party) buys and withholds a significant majority of the the IPO float from the market. With only a tiny number of shares being sold, a partnered counter-party can simply buy the shares at an elevated price to ‘ladder-trade’ the stock into an immediate halt. This could be done with very little money, since once the stock hits a 10% gain within 5 minutes or less, it will automatically trigger a circuit-breaker on most public markets. Conceivably, you could sell 1 share at a 10% premium and trigger such a halt. Once a halt occurs, it will appear on various services that announce such halts, and retail day-traders will take notice, and join in on the feeding frenzy. By withholding shares, the group driving the show can induce a series of halts up to a higher price, at which point, they can begin liquidating blocks of shares at an inflated price, causing the stock to immediately crash… then they pause their dumping, and allow the stock price to stabilize. On Day 2, they get back to work, usually in the early pre-market trading hours, when small volumes and no halts allow them to drive the price up to insane levels… at this point, buzz has reaches a self-sustaining level, and the drivers can continue to sell off their shares over several days, or weeks, until they drive the share price back to a ‘normal’ level more indicative of the underlying value of the stock.

Ok, so Hypothesis #1 is a very likely scenario regardless of whether we believe the next hypothesis has any merrit:

Hypothesis #2: These companies are simply posing as fronts for wealthy Chinese business people to transfer their money out of China and into America via inflated share prices: they would actually be the ones buying the shares (from their partner counter-parties) at inflated prices, in order to bring the losses onto their Chinese accounts, and pass those profits onto the selling side of those trades within their US based accounts. We saw what appeared to be a specific example of this in JZXN, where the IPO price was set at $5, yet the stock debuted at a ridiculous $45 and essentially bombed from there. Whomever ‘paid’ $45 for a $5 stock before it even started trading was either completely stupid, or was trying to ‘lose’ money.
Maybe I’m way off, but when there’s no other way to justify a phenomenon, finding explanations requires some creative thinking.

ANYWAY…

Let’s look at the two IPOs that appear to fall into these categories for this week:

First, the Low-Float IPO:
Ok, so this one has been on the calendar since last week, and fits the bill of a low-float IPO with a float of just 2.3M shares. However, it’s an American company, with a listing on AMEX rather than NASDAQ, and the IPO price is just $3, so this one is a slight deviation from the normal antics of Boustead Securities. Some of the Boustead offerings have turned out to be duds, and I’m a little bit skeptical about this one. If we don’t get an immediate halt upwards, I’ll be jumping out of this potential dumpster-fire as soon as possible, and even that might be too late to avoid a loss.
The company is Moving iMage Technologies (MITQ) and is slated to debut on July 8, 2021 (tomorrow… er, today: depending on when you’re reading this).

Now, for the ‘Stealth IPO’:
Here we go: this one’s got all the markings of a typical Stealth IPO: no promotion, not on most IPO Calendars except where mandated: NASDAQ finally listed it today. It’s a Chinese financial services company specializing in loan repayment and collection management. Given that China doesn’t really have a nationwide credit score, and collecting on loans can be nearly impossible, the official company description reads like some kind of gangster-for-hire employed by loan sharks, or bounty hunters at best:

”our unique approach that integrates internal and external resources under a centralized management system allows us to offer our customers a cost-effective and trustworthy solution to recover consumer loans.”

Ok, so moving past the hilariously worded description of their company, the underwriter for this IPO is none other than Network 1 Financial: the same company who brought us CPOP last week, and many other high flying, low-float IPOs in the past.

Anyway, the name of this company is Sentage Holding, and the ticker you’re looking for is (SNTG) – it debuts on Friday, July 9, 2021 and the float is expected to be 4M shares.

I can’t guarantee that this one will perform as well as the other Stealth IPOs, but I’ll be watching the pre-debut indication price, and if we see numbers in the $8-12 range, or slightly higher, I’ll be loading up a limit order and expecting a few halts out of the gate. If we get a ridiculous pre-debut indication above say, $20, I’ll probably have to bail, but the $45 debut price is the outlier, not the norm.

How to play these:

The strategy for playing these IPOs is relatively the same in terms of entering your position. You watch the indication price before the stock debuts, and enter a Limit Order ABOVE the indication price BEORE the stock starts trading. This will ensure you’re order gets filled at the moment the stock goes live.

In most cases, we see an immediate halt: the majority of the time this halt is upwards (good), occasionally it is downward (obviously bad, but rare). Once we get a halt (hopefully upward), you’ll have usually 10 minutes to get your game plan together, and this is where my strategies generally diverge between purely low-float plays and Stealth IPO trades.

For Low-Float plays: you’re gonna want to start taking out profits out of the opening of the first halt. I recommend selling out of 50% of your position at whatever price the stock opens trading from the halt: set a Limit order well below the halt price (doesn’t really matter, just anything low enough to ensure it gets triggered even if the stock opens lower than the halt price). I have access to ‘Level 2’ data in WeBull, that gives me some idea as to how much demand there is at what price levels during the halt. If I see a lot of buy orders above the halt price, I have reason to believe the price will continue upwards, at least out of the halt, and will use a calculation that works something like: ‘halt price + 10%’ and set a second limit order there. I may not sell out of 100% of my position, but at that point, I want to be about 80% out, and may let 20% ride to an end-of-day run or even into the opening of Day 2, but for a typical low-float play, I am more likely to just take all profits out of the first halt and call it a win.

For Stealth IPOs, the Level 2 data usually gives a pretty strong indication that we’re going to continue seeing upward halts beyond the first and second halt. Still I’ll start taking some profits off the table after the second halt, and will be ready to execute a Market or low-balled Limit Order as soon as I see the stock waiver at all from it’s upward trajectory.

A key difference in my strategy between Stealth and simply low-float IPOs, is that I’m more likely to let a Stealth IPO run through more initial halts, and will keep 10-20% of my trade alive for a Day 2 run or even longer, though it is very hard to predict this, and easy to feel stupid when big wins dissolve in the matter of minutes into break-even positions, or even small losses. The point is to give yourself a chance at the big money that comes on a play like CPOP last week, which debuted at $11.75 and ran up as high as $78 on Day 2.

If you want to join me for live-trading these IPOs, come to the IPO Warriors Reddit Thread on the day of each IPO.

And if you’d like to show some appreciation for the time, effort, and research I’ve done in sharing this information with you, please consider a contribution to my whiskey fund here:

https://www.buymeacoffee.com/hammondish

NOTE: I am not a financial advisor, and this is not financial advice. This is for informational purposes only… Trading IPO debuts is risky, you could lose money, you could make a lot of money, or you could just about break-even. Don’t trade with more than you’re willing to lose, and take responsibility for your own trades. Good luck out there.