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Initial Public Offerings (IPOs)

It is astonishing DoorDash Inc. (DASH – 189.51) skyrocketed 87.51 points or 85.79% during the first day of trading today. Before the IPO today, DASH was priced at $102 per share yesterday. DoorDash provides restaurant food delivery services across the US and Canada. It joins its competitors GrubHub, Uber Eats, and Postmates in the increasingly crowded food-delivery platform. Surprisingly, at the end of today, DASH will now have a market value greater than some of the largest restaurants such as Chipotle Mexican Grill (GMG), YUM! Brands Inc. (YUM), and Wendy's Co. (WEN). Airbnb will also go public this week, followed by e-commerce Wish next week, and another Fintech company, Affirm, and video game maker, Roblox, toward the end of the month.


With a record number of private companies going public this year, is a euphoric IPO market environment a warning of an impending market peak in the US stock market?


According to the IPO statistics from stockanalysis.com, there have been 4,646 IPOs between 2000 and 2020. The average is around 232 per year over the past 20-years. The prior record high for the total number of IPOs was 397 during 2000, ahead of the Tech/Telecom bubble. Before the global financial crisis in 2007, there were 268 IPOs. The lowest was 2009, with 62 IPOs. This year there have already been a record 431 IPOs, with the bulk occurring during Sep (69), Oct (97), Nov (41), and December (26).

Private companies scrambling to rush to tap the public markets depend on several factors. Historically, private companies launch IPOs when they fear missing out on the opportunity to cash out before things go south. Some believe a euphoric IPO market often coincides with a late-cycle stock market rally when investors are more willing to take risks. Interest rate trends, the FED, and credit conditions can affect financial assets such as IPOs. When the economy is expanding, this can lead to higher interest rates, which in turn can impact the pricing of IPOs.


The COVID-19 pandemic and the subsequent global lockdown may have altered the timeline for the release of 2020 IPOs. It is likely to have pushed many IPOs scheduled for the first half of the year into the second half. That would explain the record number of IP0s launched during the fourth quarter of 2020.


Professional investors have always been active in IPOs. However, in recent years retail investors have also jumped on the IPO bandwagon. The listing of several IPO ETFs may be a more diverse way for retail investors to participate in the riskier asses. The Renaissance IPO Index has become one of the more popular IPO Index. It is a diversified portfolio of US-listed newly public companies. The index is comprised of the top 80% of newly public companies by market capitalization. As of 12/8/20, the top holdings are MRNA (11.5%), UBER (9.8), ZM (7.3), PINS (6.6), and CRWD (6.4).


The IPO ETFs ranked by assets under management (AUM) are First Trust US Equity Opportunities (FPX – 114.48), First Trust International Equity Opportunities (FPXI – 63.69), Renaissance IPO (IPO – 64.70), Invesco S&P Spin-Off (CSD – 54.51), Renaissance International IPO (IPOS – 34.03), Defiance Next Gen SPAC Derived (SPAK – 28.24), and First Trust IPOX Europe Equity Opportunities (FPXE – 27.77).


It remains debatable as to whether the IPO market is a proxy to a stock market peak. However, it is reasonable to expect a euphoric IPO market hint of an increase in risk appetites and possibly speculative behavior among market participants (i.e., institutional, retail, smart money, mom-and-pop investors, etc.).


Technically speaking, the breakout above 35-36 (May 2020) for the Renaissance IPO ETF (IPO) suggests +14.92 points or a target of 50-51, which has already been achieved. Although the price trend, relative strength, price momentum, and SCTR technical indicators are bullish, the 2020 rally has led to an overbought condition (i.e., RSI has peaked near the 70% level). A negative outside day reversal pattern on 12/9/20 also warns of the start of a near-term consolidation. The key initial support rises to 56.5-57.5 (50-day ma and the late-Nov 2020 breakout), and below this to 49.5-52.5 (early-Nov 2020 low, Oct 2020 breakout, and the 38.2% retracement from Mar-Dec 2020 rally), 42.5-44 (50% retracement and the 200-day ma), and then to 37-38.5 (61.8% retracement and the extension of the 2018 channel breakout) under strong selling.


Enclosed below are Annual IPOs from 2000-2020, 2020 IPOs by month, 2019 IPOs by month, chart and technical commentaries on IPO ETF, and a listing of all the IPOs since August 2020.


Source: Courtesy of StockAnalysis.com

Source: Courtesy of StockAnalysis.com

Source: Courtesy of StockAnalysis.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com





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