History is Likely to Repeat Itself for This Surging Stock
This week, we saw the rise of retail traders’ new favorite name. But even as the stock booms, there’s good reason to stay away.
There’s been a lot of talk this year about how the wave of new retail investors in the market have pushed stocks like GameStop Corp. (GME), AMC Entertainment Holdings, Inc. (AMC), and others to incredible heights with coordinated buying efforts.
Well, retail investors seemed to have found their next target this week.
And this time, it’s not one of the most highly shorted stocks in the market. In fact, it’s unclear just how many short positions have been opened on the stock.
That’s because it has only been trading for a few days now.
I’m talking, of course, about Robinhood Markets, Inc. (HOOD) – which just made its initial public offering last Thursday, July 29.
While Robinhood is somewhat unique for the huge number of users it has been able to attract to its trading platform over the last few years, the IPO and the trading days that followed were expected to be somewhat run-of-the-mill.
In fact, the IPO looked like a bust for all intents and purposes in the first few days.
But that all changed once the Reddit crowd got a hold of the stock.
Where’s the money?
After remaining relatively flat from its initial $38 list price – with just a few ups and downs to speak of in the first three days of trading – HOOD began to rise on Tuesday before absolutely exploding at the open on Wednesday.
Overnight, HOOD went from a $46.80 stock to as much as $77.03 during yesterday’s trading. That’s nearly a 65% increase in less than 24 hours – an incredible gain for Wall Street’s hottest new stock.
Much of the credit for Robinhood’s meteoric share price rise can be credited to retail investors who have coordinated their buying spree on Reddit and other online message boards.
Trading volume on HOOD shares on Wednesday was roughly 150% higher than the average of the first four days since it debuted, fueling the stock’s rocket ride.
The question that many investors with FOMO are now asking themselves is whether HOOD will be able to maintain the massive upward momentum that began yesterday.
Here’s what I think…
How do I get some?
As we’ve seen with similarly massive price movements in GME, AMC, and others this year, the huge move up is followed by a steady decline.
And while the buying pressure could sustain itself for a short while more, I don’t believe it will last.
Unlike GME and AMC, it’s not likely that HOOD has the same amount of shorted shares that helped propel other “meme stocks” higher as the shorts were forced to cover. Brokers are typically limited in the amount of short sales they can approve on IPO day, and hedge funds are probably wary of shorting a stock that is backed by the very users that created other short squeezes this year.
It’s possible that HOOD can extend its rally in the coming days, but I would not buy it here. The risk is too great.
In fact, the better way to play it in my opinion would be to look for a reversal candle to short HOOD stock or buy put options to profit from the return to Earth that is surely coming.
You can buy these pre-IPO rights for around $1
One thing that the Robinhood IPO showed us is the tremendous profit power that the hype surrounding IPOs can create.
But there’s a better way to trade around them.
Due to unprecedented levels of American entrepreneurial innovation, you can now secure what are known as “pre-IPO rights” in over 500 companies actively looking to go public.
No accreditation is required, no minimum income requirements, and you can often get in for less than a dollar.
These “pre-IPO rights” have recently shown exceptional peak gains of 2,088%, 6,566%, 9,075%, even up to 27,550% in just a matter of months.
In the Spotlight: Crypto has Uncle Sam’s attention…
Cryptocurrencies have been getting some rough treatment from several governments around the world this year – most notably the Chinese ban on crypto mining.
But the U.S. government is currently considering a proposal that would give a big boost to the digital market.
As the $1 trillion infrastructure bill is debated in Congress, an amendment to the bill was filed this week by Senators looking to support the crypto industry.
The change would specify that crypto miners, brokers, stakers, and companies that sell cryto mining and storage equipment would be exempt from reporting the activities of their customers.
The U.S. is expected to rake in $28 billion dollars over ten years from crypto taxes, but is proceeding cautiously with how it will enforce regulations as it seeks to digital assets into the U.S. financial sector.
I’ll be keeping watch for any further developments regarding crypto in the infrastructure bill and the effect it could have on various coins. Should any advantageous buying opportunities arise, you’ll be the first to know.