Does A Growing Number Of Ipos Indicate Overstretched Markets?

Whether or not you believe that a growing number of IPOs indicates overstretch markets, the fact is that you can only really float an IPO when there is investor demand. Investor demand predominantly comes when markets are strong and investors are looking for new offerings. So, the reality is that a growing number of IPOs in the US is probably indicating markets are stretched in the short term although the medium to long term situation is a little more difficult to predict.

Selling into strength

If you trade stock markets you will find it is easier to sell stock, especially large amounts of stock, when the price is moving up and there is demand. In effect this is “selling into strength” which is the best market condition to sell an IPO. For example, if there was demand for technology shares and you could see the sector pushing to record levels what better time to float? If on the other hand you were looking to float a technology company and there was no demand for technology shares then an IPO would be a waste of time?

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Lots of bubbly IPOs in recent years.

 

I think investors will need to be very picky about which IPOs to look at because as JR said some of them are a little bubbly. Look at the volatility of SnapChat.

 

I like to wait until any lockups expire and preferably after an IPO has sold off hard before I start to put much or any $ in them.