The Super Gap and IPO Base Setup

The Power of IPOs

Hey everyone,

As traders, we are looking for repeatable setups and patterns that we can use throughout many market cycles to capture strong trends.

Two of the most powerful setups are the IPO Base Breakout and The Super Gap Setup. I’ll describe both here and provide some historical examples.

The IPO Base Breakout

The IPO Base is often the first tradable point in a stock’s lifetime. Based on studies by WON it actually leads to the most Model Book moves out of any other type of base

It is a consolidation that often forms within 25 days of the IPO. While traditional bases need weeks to form, IPO Bases can last as little as 5 days. With the IPO base, you are watching for a clear pivot to form and ideally volume to dry up as the stock goes sideways.

Here is an example from 2020 of CRSR which more than doubled out of its IPO Base.

it’s important to remember that IPOs making their first moves are much more volatile, so it’s often prudent to use a lower position size.

Google is the textbook IPO Base Breakout, advancing 180% in short succession.

INMD, 2019, +100% in 18 Days.

The Super Gap Setup

Super gaps are another way to play promising growth stocks and especially recent IPOs. The Super Gap Setup is usually caused by a game-changing announcement or catalysts such as blowout earnings or a new product.

You may have seen me refer to similar setups as EGU or Earnings Gap Ups. The Super Gap Up is a subset of these that display particular power and meet the criteria.

FSLY example from 2020. +250% in 60 days

The term was coined by Eve Boboch, Portfolio Manager, Market Strategist, and co-author of the Lifecycle Trade: How to Win at Trading IPOs and Super Growth Stocks.

The book shares the results of studying thousands of stocks as a part of the Lifecycle Trade Study, where she and her co-authors analyzed a huge database of IPOs going back to the 1980s.

Their goal was to determine how to find the stocks that can turn into the next Google, AMZN, or TSLA.

They will be diving even deeper into their findings and showing how they apply the study in the upcoming IPO Masterclass.

The Super Gap Setup, despite feeling extended, can actually signal just the start of a major move in a stock’s institutional advance phase. It can kick off a trend that lasts months and sees the stock move hundreds or even thousands of %.

Facebook is a well-known example, gapping up and moving 100% quickly, before starting a steady advance higher for the next few years.

In every market cycle, we see young IPOs exhibit this characteristic after going through a basing period. Many stocks that IPOed in 2021 are now potentially setting up for these types of gaps.

In the IPO Masterclass which starts this week, Eve will be going through the details of exactly how she finds and trades the Super Gap Up Setup, including how she manages risk and picks her buy points.

I’m very much looking forward to the class which will cover the key findings and details of The Lifecycle Trade Study as well as getting into the details of each of the authors’ individual trading styles and tactics.

They’ll be sharing years’ worth of knowledge and experience throughout the 7 week class.

As I mentioned before Eve is a Portfolio Manager and Market Strategist since 2011.

Kathy Donnelly is an experienced trader and former engineer who now managers her own money.

Eric Krull is a Hedge Fund Manager since 2013 and Kurt Daill is a Money manager and retired Naval Officer.

I’ve been working with the Lifecycle Trade team for many months now to prepare the presentations and additional resources and I can’t wait to get started this weekend.

Today is the last chance to sign up using the Early Bird Discount and I highly encourage everyone to take advantage of it.

What they will be teaching in the class goes beyond trading IPOs and will help you with your routines, screening, sell rules, and many other aspects of trading.

They will share how to trade like a professional.

The early bird discount ends in less than 24 hrs. After that prices will be going up.

If you have any questions about the class, drop them in the comments below.

I hope to see you at the first class this Saturday!

Cheers,

Richard