Chart courtesy of Stockcharts.com
Let's take this apart.
First, day one we see large volume of trading as in most new issues. The stock bounces off a high of about 50 and closes lower. Typical of a stock that has a premium. The rabid buyers bid it up, run out of gas and it closes down a few points.
For the next number of days, it sets up a support level at 40, nice round number like many such support levels. The resistance is about 46.
So we would easily expect trading in that range until a breakout.
If you are an underwriter who put a client in a hot IPO like this, you will not be happy if they flip it out immediately. If they do flip it in the first few days of trading, their allocation on the next hot IPO is likely to be reduced. Knowing investors will be grateful instead of greedy and hold off selling for a decent interval.
But as time wears on, these lucky friends of the underwriters will be likely to take profits and move on. The trading desk of the underwriter will be trying to hold the bid. It is horrible to think they may have been short when the deal started trading.
Will buying come in an push it over 46? Seems doubtful to me. After all the trading so far, who is left to buy and why?
The bull case consists of future projections that may or may not occur, supported by the smart investors already in the deal. The bear case is the current valuation, far above what the underwriters thought it should be in the IPO.
My instincts are to take what is real now, and discount the dream of the future.
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