IPOs Take Patience

By | October 13, 2014

I’m a fairly conservative investor/trader so I don’t often buy IPOs until the stock has traded for several months and had a chance to shake out (and pass lockup periods). Using Trade Followers momentum computed from Twitter and StockTwits offers a nice tool to help me be patient and wait for the initial hype for the IPO subside. What I like to see is the stock establish a trend and see social media momentum stop painting patterns of chasing.

Here’s an example with Twitter (TWTR) over the last year. After the initial rally from excited buyers, TWTR started a downtrend that was confirmed by 7 day momentum (lower highs/lows as price fell). Then in February momentum finally painted a positive divergence with price that had lows more than three weeks apart. It was also painting lower highs which compressed momentum in a triangle. A break higher from that triangle would have created a buy signal, but it wasn’t to be. Instead, momentum broke lower in March which indicated TWTR had more work to do on the downside. May brought another positive divergence, triangle, then a break higher. This created a buy signal that ended up being a good long term entry point. It also provided a good trade for traders that like counter trend bounces.

141013twtr

Here are some recent IPOs that I’m watching with annotations on the charts. The short story is that I’m still patiently waiting for the shake out to complete.

141013king

141013gpro

141013loco

141013mbly

141013baba

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