So as Alibaba (BABA) approaches its lockup expiration day on March 18th, the news media is announcing the plunge in the stock price that will happen as the stock goes through this period. Here is the chart. Not much to smile about. A 4 month down trend, recently trading below the original pullback and under performing the $SPX on the purple SPURS. A small glimpse of enthusiasm could be tilted towards the positive divergence on the MACD, but that would be a stretch. On March 18, when the lockup expires, what will happen to this highly praised IPO?
Chart 1
While reading all the negative chatter, I thought I should go look at other large IPO's to see how much pain this LE day would give investors. I remember Facebook (FB) falling after it IPO'd and it had a rather tumultuous first year. So here is the setup on Facebook as it headed to the lockup expiration.
Chart 2
I left the annotations on the Facebook (FB) chart and stretched out the right edge of the chart until today. How would you feel about entering on Facebook Lockup Expiration day?
Chart 3
Wow, Facebook (FB) looked pretty good coming out of LE. I remember Twitter (TWTR) had some trouble. Let's check that chart. The Lockup expiration is the day after the right edge of the chart. Same down trend as the current BABA chart above.
Chart 4
Well, here is the Twitter chart with the Lockup Expiration date. Twitter looked like a canary in a coal mine without oxygen the day the LE showed up. The stock fell to its lowest low on this chart. But it also never made a lower low. Not a bad entry.
Chart 5
Here is FireEye (FEYE). The stock doubled after the IPO and then pulled back. March 19 was the Lockup Expiration date. (similar to the Alibaba date above).
Chart 6
Here is FireEye (FEYE) currently. Ouch!
Chart 7
So the learning for me is to watch how the stock behaves in the days after the LE. If it gets bought and supported, there might be a trade there. Until then, buyer be aware.
Good trading,
Greg Schnell, CMT
Note: I may have some positions in the stocks mentioned above at time of publication.
