bullish breakout

IPO Hangover

I find most IPO’s follow a similar path of rocketing higher with unabated enthusiasm until they finally succumb to the eventual selling of a Wall Street over-hyped sales pitch. There usually is nothing wrong with the company but rather it’s a matter of running out of buyers as the IPO chasers and company holders take profits. No, not every IPO acts this way but, in my experience, most do which is why I typically avoid them.  But let’s be clear, I don’t avoid them completely because they eventually become very attractive investment targets once they finally bottom from their IPO induced hangover. 

Teledoc, TDOC, is a great example of this “IPO pattern”. (I would recommend readers memorize this as it is one of the market’s best money making patterns that continues to repeat and provide smart investors a way to bank coin). As you can see in the chart below, after 5 short weeks and a more than 65% climb from its IPO, the sellers overwhelmed the buyers and pushed the stock to level more than 50% below the IPO price, where it sniffed the $9 level and eventually formed a divergent low double bottom.

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From that double bottom, TDOC quickly rose more than 100% in four short months and has since consolidated sideways in an attempt to digest those gains and build energy for its next move. While the week is not over, a breakout with confirmation (ie, bullish RSI momentum, volume confirmation and along with price) above last September highs (blue horizontal) provides a very attractive and objective entry who’s first upside target is 20+% higher. Assuming it makes it there, the next logical resting point is more than 50% above which is what has me watching this opportunity with great interest.