Want to check out a safe way to trade an IPO? Here’s my take on DocuSign (DOCU). (May 03, 2018)
DOCU
We are looking at almost a white chart here, except the stuff on the right side. Here’s the deal on DocuSign ( NASDAQ: DOCU ). You can see where the stock started opening for trading last week. It got a lot of play, it started here, $38.00 is where it opened, I forget what the actual price was, I am sure it was lower. The stock gyrated all around sucking everybody’s money out and essentially I think a lot of folks forgot about the stock.
Well, today the stock comes roaring back; I know some of the traders in our trading forum were all over this. So I thought I would look at this and show you how to look at these IPOs. First of all, just as a general rule, we call it an IPO strategy but it is really just a way of making sense out of initial public offerings; we will use this chart here.
The stock starts opening for trading here. It does what it does over a period of days or it can be weeks but typically days. A lot of times you get a big pop the first day. The first day the stock comes up and as everybody rushes in to buy it before other people can buy it. They don’t know that actually the “other people” that bought it are actually, the folks that you are buying it from, they are selling it to you. They were pre-public offering investors that are now taking their profits, so you can pretty much get sucked in right away. The stock price comes up and then it starts drifting a little bit lower and this can last for months. This may never actually come up, see PALM, this may never come up and hit a new high.
Typically the price will fall and then ultimately start to rally back above what I call the “enthusiasm high”. And then once it does the idea here is that everybody who bought here is a winner. They are all winners; there is no resistance overhead, other than just Catholic guilt (I can say that because I was born Catholic), Catholic guilt trading where it is like I am making so much money I have got to sell; I feel bad; that type of thing.
Once the stock breaks up into blue sky we don’t have any resistance from people who want to get out of the stock and get their money back, everybody is whole and then some. Then the stock winds up doing what it’s doing and hopefully moves up to a million dollars and we are all rich. Typically what happens though, is this takes quite a while to figure out.
The way I am looking at DocuSign ( NASDAQ: DOCU ) here is, we can trade that same IPO strategy on an intraday basis. We have only got 5-days of trading under our belt but if we look here at $41.00 as this initial enthusiasm high here then you can see that today was the day that the stock actually broke out above this level.
What I would suggest doing is; we will look at this on an intraday basis in just a second. What I would suggest doing is using this high here, last Friday’s high, as a reference for a stop. Try putting a stop, at least on part of your position, make it 40.48. So this is how much room you are going to give this stock. This was the high and then you are going to give it a little more room.
If we look at this on a percentage basis you can be buying the stock now; let it come all the way down here and that is a 3.5 percent risk. I think that is going to be fine. You want more data, go intraday. You can see what is happening here, it almost looks like a volatility squeeze. We can even get a little bit better if we look at a 30-minute chart. Now suddenly this chart starts to look like something. We see this initial enthusiasm high, then we are seeing the little pullback, this almost looks like a little cup and handle pattern here, intraday cup and handle. We see this little sell-off. We see the stock trading sideways. And then finally we get a key breakout that ultimately, just today, took us above this $41.00 level.
You can see how, if you are looking at a chart and you don’t what the heck is going on because it just started trading, break it down to an intraday chart that actually makes sense to you. Then you are really going to be trading the stock, frankly, first thing in the morning, maybe towards the close but typically the big moves come first thing in the morning.
For tomorrow here is what I would do: I would at today’s intraday high on a 30-minute chart, we can still see 42.56. So you can buy the stock here, literally right here. Keep a stop right down here and then if the stock starts trading above 42.56 buy some more at 42.60. Then start protecting your profits because you will have them. And then just let DocuSign ( NASDAQ: DOCU ) continue to move higher until you have got to start using their product to move all your money around.
Free Chart