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The One Thing Small Caps Can Teach Us About IPOs

After talking with Jeff Bishop and Ben Sturgill about IPOs, last night … all I could think about were the charts that Ben showed me — as he showed us how to directly profit from the three phases of an IPO.

You see, I base a lot of my trades on chart patterns… and when he showed me the first phase of an IPO, I quickly realized that the pattern that Ben looks for is one of the patterns I look for when I trade small-cap momentum stocks.

The thing is… small cap momentum stocks are a lot like IPOs.

They don’t care what the overall market is doing… and chart patterns help you pinpoint exactly when to buy a stock poised to breakout.

You’re probably wondering, Jason what pattern are you talking about?

Well, it’s the bull flag — one of my favorite patterns to use.

Let me show you what I’m talking about with a chart…

 

Check out the daily chart in Smith Micro Software Inc. (SMSI).

This is a perfect example of the bull flag setup.

Basically, with this pattern we’re looking for three things:

  • A massive move in the stock
  • A consolidation period (trades between a tight range)
  • A breakout

Notice how the bull flag was actually formed in SMSI.

The stock gapped up and continued higher — that’s where the flagpole forms.

Thereafter, you can see the stock trade between two levels — forming the flag.

Once I see that pattern, I know chances are the stock trades higher and breaks above that trend line… and that’s exactly what happened in SMSI.

 

This pattern works really well with small-cap momentum stocks… but when you turn to the IPO market and find these setups — it could be even more lucrative.

Why?

This Pattern Finds Explosive Opportunities in IPOs

Well, with recent IPOs, there’s a lot of hype surrounding the companies… and when they break out, there’s a lot of demand for shares, sending the stock higher in an explosive fashion.

Check out the daily chart in InMode Ltd. (INMD) — a recent IPO.

This pattern look familiar?

It should, it’s the bull flag pattern… it might not look exactly like the first one I showed you, but remember — identifying chart patterns is an art form, and not everything needs to be a textbook setup.

However, the idea is the same here.

  • INMD had a massive move after it went public.
  • Thereafter, the stock traded between a tight range.

Remember, with the bull flag pattern, it makes sense to buy within the consolidation pattern to play for the breakout.

As you can see… once INMD broke out of the bull flag pattern… it had an explosive move.

You’re probably thinking to yourself, Could this pattern work in a stock like Beyond Meat?

Check out the daily chart in Beyond Meat (BYND) above.

You’ll notice that there were two bull flag setups in the stock within the first month after going public.

It’s the same thing we saw in SMSI and INMD.

Remember, we’re looking for a trend higher — followed by a consolidation area — and then the breakout… that’s exactly what BYND did…

… and if you were able to buy in the consolidation area in the second bull flag setup, you would’ve been sitting pretty.

The thing is… this is just one of the patterns that work well with IPOs… and there are two more that Ben thinks will be even more profitable.

If you missed out on our live event yesterday, don’t worry… I’ve got you covered with the replay.

But make you sure watch this today, because I’m hearing this could be taken down at any moment now.

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