3 Charts That Suggest IPOs Deserve a Place in Your Portfolio

The market for initial public offerings (IPOs) has been relatively uneventful over the past couple of years. Easy-to-access capital in private markets due to factors such as low interest rates has created an alternative path for startups rather than the traditional route of public offerings. However, this story seems to be changing given recent listings and SEC Form S-1 filings from high-profile names such as Pinterest, Inc. (PINS), Lyft, Inc. (LYFT), Uber and Slack. In this article, we'll take a look at three charts suggesting that it could be the ideal time to add IPOs to your portfolio.

Renaissance IPO ETF (IPO)

When it comes to tracking the IPO market, many active traders turn to the Renaissance IPO ETF (IPO) for clues. As the name implies, the fund's managers seek to add exposure to the most significant newly public U.S.-listed companies. The ETF uses rules based on the Renaissance IPO Index, which adds sizeable new companies on a fast-entry basis and the rest upon scheduled quarterly reviews. Companies that have been public for two years are removed from the fund at the next quarterly review.

Taking a look at the chart, you can see that the price has moved higher in recent months and that it has triggered a bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle). This long-term buy sign is commonly used to mark the beginning of a major uptrend, and some followers of technical analysis may want to wait for confirmation and buy once the price surpasses the dotted trendline of the short-term ascending triangle pattern near $31.50.

Technical chart showing the performance of the Renaissance IPO ETF (IPO)

Okta, Inc. (OKTA)

One of the best performing IPOs over the past 12 months has been Okta, Inc. (OKTA). Taking a look at the chart below, you can see that the bulls are in clear control and that the support of the 200-day moving average has prevented a sharp move lower on several occasions. Active traders will also want to note that the price has recently broken out of an ascending triangle pattern and is trending higher. Based on the pattern, traders would expect the move to continue and will likely look to protect their long positions by placing stop-loss orders below $89.41 in case of a sudden shift in sentiment.

Technical chart showing the performance of Okta, Inc. (OKTA)

Docusign, Inc. (DOCU)

Another IPO from the technology sector that could garner the attention of bullish traders comes from the chart of Docusign, Inc. (DOCU). This chart will likely be of interest because there are now enough data points to form the 200-day moving average, which has already prevented a move lower on a couple of occasions since March. Tuesday's 4.76% move lower could be giving active traders an interesting opportunity to pick up shares at a lucrative risk-to-reward ratio. Based on the pattern, traders will likely look to buy as close to the combined support of the 200-day moving average and lower trendline near $50.31 and to sell on a move toward the upper trendline near $59. Furthermore, a break beyond the resistance level would likely act as a catalyst to an even more significant move higher.

Technical chart showing the performance of Docusign, Inc. (DOCU)

The Bottom Line

The IPO market has been relatively quiet over the past couple of years, but that story seems to be changing now due to filings from some high-profile companies. As risk capital and attention shift to these new issues, it will likely prove prudent to keep an eye on the patterns mentioned on the charts above. 

At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.

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