The IPO Bear Market Ends Now

Plenty of green on the screen to start the week…

The Dow jumped triple-digits yesterday. Crude rocketed higher by nearly 3%. Even gold got off the mat and enjoyed a nice little rally.

But there was one small group of stocks that couldn’t keep up with the pack…

I’m talking about a couple of formerly smokin’ IPOs.

You probably recall two of the best performing new stocks of the summer: Acacia Communications (NASDAQ:ACIA) and Twilio Inc. (NYSE:TWLO). The last time we wrote to you about these stocks in late August, ACIA was up nearly 400% and TWLO had gained only 260% since it hit the market in late June.

Traders had an enormous appetite for shares of these new offerings. Until Monday…

ACIA slid more than 7%, dropping below key support. TWLO fared much worse. The former high-flier dipped more than 14% before the closing bell. While the rest of the market hummed along, these recent IPOs took a bath.


Do these breakdowns mean you’ve missed your shot at lightning fast IPO gains this year?

Nope. In fact, the IPO market is just starting to come out of hibernation.

You might recall that 2016 has been a downright terrible year for initial public offerings. Business Insider reports that 2016 has been the worst year for initial public offerings since the height of the financial crisis.

Let’s go to the numbers:

“There were only 73 IPOs in the first three quarters of the year, according to FactSet. That’s down 45% from last year and the lowest total since 2009,” Business Insider reports. “The tech space was even less active, with only a handful of small companies having gone public so far this year.”

So it’s no surprise to see greedy speculators bid up shares of TWLO and ACIA to ridiculous heights, only to jettison these same stocks just a few short months later. That’s how a typical early-stage IPO operates. You get a huge rally out of the gate, followed by an equally impressive crash as the new public companies return to the market to raise funds or fail to live up to unrealistic expectations.

You know this story all too well if you were tempted by a red-hot initial public offering last year as the broad market corrected. Most IPOs are just cash grabs for up-and-coming companies and underwriters—especially in trendy sectors and industries. And when the market starts to crack, investors tend to dump these speculative stocks first. They can fall fast— and hard.

But TWLO and ACIA have served an important purpose. With practically no new stocks to choose from, the few IPOs that are making it to the market have attracted a ton of attention.

As a result, the IPO market is finally beginning to heat up again. CEOs and underwriters are seeing there’s a renewed appetite for fresh meat—and they’re ready to deliver. Even big-name tech companies like Snapchat are preparing to cash in. Its IPO is expected early next year…

In the meantime, you can find a few other quality new issues to sharpen your trading teeth.


Greg Guenthner
for The Daily Reckoning

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