We had a great night last Friday in Chicago with Scott O’Neil at the Trading Summit. We noticed that one of the topics that most resonated with the crowd was our approach to IPOs. People probably had GoPro (GPRO) on their minds.

 

While it’s true that many of the biggest stock market winners run within 10 years of their IPO, at MarketSmith we don’t get swayed by early hype. We wait a bit to let the stock develop a trading history and prove itself before jumping in. We do this by watching for an “IPO base” chart pattern to form, which only takes two to four weeks. If an IPO shows some consolidation—which means the institutions are buying steadily—and it breaks out on good volume, we then have reason to believe the stock will move higher.

 

That conviction can be bolstered if the company is focused on innovation: the most successful IPOs come from companies that are introducing new products or new technologies with the potential to change the way people work or do business. That is certainly the case for GPRO, but we’re going to give that one a little more time.

 

 

In 2004, GOOGL formed a textbook IPO base (pictured above).

 

Best Returns,

The MarketSmith Team