Candlestick Trading Blog
February 19, 2010
Initial Public Offering
| An initial public offering (IPO) is when a company offers shares of stock to the public for the first time. A company typically uses the services of underwriting brokerage firms or other companies experienced in picking the best offering price and timing for the offering. Initial public offerings can be a startup company looking for capital to bring products to market or it may be an established private company looking to be registered on a stock exchange and to sell stock to raise capital without borrowing. IPO’s can be excellent investments. However, buying stock in an IPO can also be risky as there is often a series of ups and downs in stock price after issuance of the IPO. To find out what companies are making initial public offerings or have just made them a simple stop at the hoovers.com web site will provide a list as well as basic financials. When investing in or trading stock in IPO’s fundamental analysis is important but so are a firm grasp of Candlestick basics and Candlestick pattern formations. Add a fair amount of psychology of investing and the investor is ready. A well managed IPO underwriting firm can do such a good job of presenting the company to the public that the IPO sells out quickly at the offering price. If the underwriting firm has really done its job the IPO will have been all over the stock market news and discussed in numerous stock market newsletters. This degree of attention will often serve to drive up the price of stock shares as those who did not buy at the offering price (maybe the IPO was sold out) try to get in on a good thing. IPO’s are easily subject to fundamental analysis of the value stock investing sort as they have products, belong to market sectors, and have competitors with whom to compare. However, technical analysis with tools such as Candlestick chart analysis can be a different matter because the stock has never traded on the stock market before. It has no trading history! Over the longer term IPO’s may represent winning stocks or losing stocks but in the days after the initial public offering there can often be a predictable pattern to the stock prices of IPO’s. A common pattern is that a popular IPO sells out very early so that no stock is available at the initial offering price. Then the stock is bid up substantially. As an example, one who is paying a premium for the stock is a naïve individual who engages in occasional buying for long term investing and who believes all the hype put out by the underwriting firm. He thinks the stock will be a great long term addition to his portfolio. Another is the day trader who sees high volume and a stock trend. The trader jumps on and rides the stock up, watching market volume and is alert for pull backs. The trader is more interested in trend analysis that the long term prospects of the stock. A trader, or investor, who makes a study of IPO’s will see a number of unique patterns. For example, one common pattern is for the price of the stock to rise after the IPO, over correct downwards, and then gradually climb to a more stable price. The judicious use of Candlestick chart formations can be useful in this instance to make profits on initial public offerings. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
|
 |
|
 |
|
 |
|
 |
------------------------------------------------------------------- -
0 Comments:
Post a Comment
<< Blog Home