The bullish momentum that has dominated the financial markets over the first several sessions of 2019 has many investors and traders wondering whether now is the time to buy. Segments such as biotechnology, commodities, technology and recent initial public offerings (IPOs) have all been particularly strong. In this article, we've chosen to take a look at several charts that reflect the performance of IPOs, since this group often represents risk capital. Analyzing this key group of stocks by looking at the Renaissance IPO ETF (IPO) as well as a couple of its top holdings should be able to help traders get a sense of what could be in store over the weeks ahead.
Renaissance IPO ETF (IPO)
As mentioned above, traders who want to get a sense of overall risk tolerance within the financial markets often turn to recent IPOs. When conditions are good, the number of offerings as well as the frequency of sharp upward price moves increases. Conversely, when conditions are bad, risk capital flocks to more stable sectors and downtrends start to dominate. In the case of the Renaissance IPO ETF, you can see that prices moved sharply lower amid the broad market sell-off that started in early October. The sharp bounce so far in 2019 has traders talking of a move higher, but traders are noting the nearby resistance of a descending trendline and the 50-day moving average, which suggests that prices could be gearing up for another move lower. More specifically, the levels of resistance could be used by bears looking for where to place their orders, and at current levels, the risk/reward is in favor of the bears.
Spotify Technology S.A. (SPOT)
One of the most popular IPOs over the past 12 months was that of Spotify Technology S.A. (SPOT). Based on the chart below, it is clear that the bulls were in control of the momentum heading into September, but the conviction was unable to persist. Bearish traders have dominated the direction since the price closed below the 50-day moving average. From a technical perspective, the price bounce toward the combined resistance of the descending trendline and the 50-day moving average will likely signal an opportunity to the bears to re-establish their positions and tighten their stop losses.
VICI Properties, Inc. (VICI)
The top holding of the Renaissance IPO ETF is VICI Properties, Inc. (VICI), which could be of interest to active traders. As discussed, the recent bounce has sent the price toward the resistance of key trendlines and moving averages. This is also the case of VICI, but the bounce higher has pushed the price toward the key resistance of its 200-day moving average, which is traditionally regarded as a much stronger barrier than the 50-day moving average, which we highlighted in the cases above. Traders will want to keep an eye on VICI over the next several sessions to see how it reacts near the 200-day moving average at $19.71 and the psychological resistance near $20.
The Bottom Line
Active traders are always on the hunt to gain insight into the future direction of the markets. Analyzing sectors that often represent risk capital such as IPOs, biotech and commodities is one way to get a sense of overall sentiment. Based on the charts discussed above, the recent bounce higher could be giving traders a false sense of confidence, and nearby resistance levels should be looked to as a reason for proceeding with caution.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.