Frequently Asked Questions

Market Lab Report
How do you handle tricky IPOs that are leaders in their space but not forming a proper base?

IPO bases that issue pocket pivots can be bought even if the base seems questionable. Of course, as with pocket pivots, if the pocket pivot is extended from a straight-up-from-bottom pattern, it is best to either buy only a small position or wait for a better set up.

That said, during weak markets, even the best IPOs can drop substantially. EBAY in 1998 would be one such example. At the end of October 1998, when the weight of the market came off, EBAY zoomed, forming a U-pattern. It could then be bought as it moved to new highs on volume.

Buying breakouts of U-patterns must be handled carefully as the pattern is wholly contextual to the general market and the stock itself which must be a leader in its space. Thus there are no set concrete rules since the pattern that forms out on the IPO must show definitive strength relative to the general market.

Published: Jul 3 2011