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The Stealth IPO

May 15th, 2021

Without warning, an IPO shows up on a random news ticker, chat group, or PR Newswire Release. Where did it come from? What is this business? Why would a company launch an IPO without promotion or hype?

The answers are somewhat unclear, but what is certain is that there are massive profits to be had for those who ride the wave of what appears to be clear evidence of a price manipulation scheme that drives the shares to insane multiples before eventually crashing down to more normalized valuations.

Recent ‘Stealth IPOs’:

Wunong Net Technology (WNW): This one caught me totally off-guard when it IPO’d on December 15, 2020: it wasn’t listed on the NASDAQ IPO calendar, and had not been mentioned by anyone prior to its debut. Day 1 was fairly uneventful, asides from an initial trading halt to the upside that appeared to fade out through the end of the day. The real fireworks started on Day 2 and carried into Day 3, at which the stock reached at peak of $160.02 before since declining all the way to its current price of just $6.97
At this point, I was aware that Chinese IPOs were possible targets for price manipulation, and I started playing them and paying attention to what was driving their insane moonshot behavior.

Tian Ruixiang (TIRX): I was working at my desk, when one of my Reddit Thread members posted the question… “Is anyone playing TIRX today?”
I was a little embarrassed that I was not even aware of this IPO, and after scrambling to look it up and do some quick research on the company, thought, “nah, some Chinese insurance company, not worth it.”
But with no other IPOs that day, and some interest from others in the chat group, I decided to play it for 1,000 shares. I ignored the fact that it was priced at $5 per share and indicated up at $16.00 and went all-in more or less.
Glad I did.
After debuting at $16.00, it shot up into a halt at $17.80, and what followed was an uncommonly long 3 hour trading halt. I got a bit spooked, and decided that I’d exit my position immediately off the halt, and set a Limit Order at $19… the stock opened at $49.99 and again halted, but not before my order was filled for an absurd $33,000 win!

Again, I still hadn’t connected the dots to understand what was driving some of these low-float, unknown Chinese IPOs to the moon, but I was set on playing them as often as I could. Some were losers, and many did pop off the debut but did not post the monster runs that WNW and TIRX had offered.

Then, just yesterday, I passed on another huge runner, with EJH. I passed on it simply because there had been absolutely no trace of this IPO on any social boards, and it wasn’t even showing up in the NASDAQ IPO calendar.

What I didn’t understand, was this was actually the signal that I absolutely should have played it with a full clip of ammo!

Utime (UTME): This one showed up in my trading platform’s IPO Center (WeBull) on the day of the IPO. A quick Google of the company yielded no press coverage and Twitter was silent on the listing. The market wasn’t particularly hot that day, and I didn’t feel like taking a loss on an unknown Chinese mobile phone OEM, but didn’t want to completely miss out, so I threw my hat in the ring on 100 shares at a debut price of $11.00, and was happy to exit out of the initial halt with a nice little 35% win. Imagine my confoundment when the stock ripped into 9 consecutive upwards halts… and then continued rising up to a peak of 107.33
Whoah… I still hadn’t quite recognized that the lack of publicity was the giveaway.

E-Home Household Service Holdings (EJH): In case you missed it, like me, EJH opened up at $16.60 and peaked at $67.85 – it looks like it might run further on Monday, but I’m not touching this one at this point. The company itself is some kind of network of appliance repair and maid service in China (with a business registered in the Cayman Islands). It wasn’t on any IPO calendars prior to Friday, and is still not showing on the NASDAQ list of recently priced IPOs.

So what’s going on here?

Well, it certainly appears that the stealth debut is intentional, and given the insane spikes we’ve seen in the share prices, it appears that some kind of intentional price manipulation is going on. Who in their right mind would value an appliance repair/house cleaning company at $1.8B ?

Unlike low-float IPOs that have received some publicity that caused volume spikes, such as EBET and IFBD, these stealth IPOs traded up on relatively low volume. Sure, eventually volume showed up, as day-traders reacted to the trade-halts that appeared on various tracking services, Twitter, and elsewhere. But where did the initial demand come from that drove those initial halts?

As I watched the tick-by-tick data for EJH in it’s opening trades, I noticed that these were relatively small volumes of trades, many trades of just a few shares, that drove the price up. This could rather easily be done by a handful of traders who were in on the game, and would cause an intentional spike by ‘laddering’ their trades.

I brought this question to a good friend of mine, who also trades in my IPO group, what he thought about this phenomenon. He’s digging into it further, but his initial reaction was to hypothesize that it was a form of money laundering. Moving money from one account to another by selling shares out of one account and buying them in another account. This would clearly benefit from having a stock to trade that is ‘under-the-radar’ and un-traded by the general public. Being an IPO, rather than some obscure penny stock, hides the spike in trading from being an anomaly that might otherwise bring unwanted attention from the SEC.

Another speculation is that it is simply price manipulation by traders close to the company or underwriters who are aware of the IPO and able to snatch up a significant amount of the float by bidding it up to an unreasonable price for any standard trader. Then they ladder trade it up into some halts, and await the oncoming rush of day-traders.

Conclusion:

I’ll continue looking into the dynamics behind the Stealth IPO, but this much is clear: when an unknown Chinese company announces an IPO on the day of the IPO, I’ll be buying in with a big position.

And yes, I’ll be sure to send out a newsletter the next time I see what looks like an attempt to launch a Stealth IPO.

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