Here’s how we trade IPOs. Take a look at Alegion (ALLE)
Discussed in this article: Allegion plc ( $ALLE )
I want to look at Allegion ( NYSE:ALLE ) It’s a random company, two and half million shares traded so that was a good thing. Why am I bringing up Allegion ( NYSE:ALLE ) here, it’s not exactly one that we follow. It’s because one of our members mentioned this in the forum today, I wasn’t watching it, but it’s fitting into the IPO analysis, or framework, or strategy that I use in trading IPO’s.
Basically this is how it; works first of all we start trading here so guess what happened today? An all-time high, the stock also broke out above this level, and volume was really solid, so this is a good break out, this a valid breakout. But here’s the analysis that I tend to use; wherever this stock goes when it first opens for trading, in the case of PALM of course it went straight to zero that’s why you don’t want to buy an IPO when it first is PO’d. After the stock pulls back from what I call the enthusiasm high, otherwise known as lemmings running in to buy stock from smart people, the stock, if it’s one that you’re ultimately going to want to buy, this is how you do it; you look for a bottom here, go ahead and trade it all you want right here but this just isn’t fitting into my strategy, you might be a viable trade, more than one way to trade a stock, I’m just showing you mine as far as how I on look at IPO’s.
Ultimately, you hope the stock bottoms, but again we’re just watching it here. Again, if you want to buy it here, great, you’re just buying it because you’re buying it, you’re not buying it because it’s a part of this strategy analysis that I talk about. Stock a lot of times will come up and test this level, look at a bunch of charts, you will be amazed at how many times the initial push doesn’t go through, sometimes it happens two or three times. But ultimately and IPO that breaks out above this enthusiasm high, and I’m not just retrofitting this to this chart, again just find some charts and look at them, you’ll be amazed at how many times this happens. Once the stock breaks out, it keeps moving up for a bit. When it finally rolls over and pulls back guess where it will find support? It will find support at this prior resistance level, it happens all the time.
So here with Allegion ( NYSE:ALLE ), the first buy point was here, this was a signal that the stock was breaking out, all-time high. Then what you want to be doing is buying on any pullbacks, like here, good buy point, this little drift sideways, good buy point, you could say, “Well right here.” Okay fine, we’re not that much higher than that right now. This stocks been trading sideways, today this thing broke out on high-volume, the bottom line is this: I think you can buy this stock right now, not to make money on it tomorrow, because it might pull back a little bit more. But I think you can buy this stock now, and as soon as you do, just step back. If the stock winds up trading say below the 20-day moving average, which is 48.90, so you’ve got like $3.00 here, then you want to rethink your possession. But for now, I think Allegion ( NYSE:ALLE ) is one that works. So kudos to the member who brought this up today in the forum, I’m giving it to everybody.