October 6, 2006, 9:00 am

lackluster week in the ipo market

DAC...didn't take too long for that one to break....even with market doing well, they're not hesitating to overprice ipos and break them if they can get away with it. The high fee generating hedgies have really altered the ipo landscape.


1 - they can get size on these offerings because they do so much volume biz at the houses...and for the most part they're looking to take size and flip them. This has resulted in a number of ipos pricing stronger then they otherwise would..and then being unable to sustain that pricing. we've seen the after effects of this recently as more ipos by % have broken pricing past year or so then anytime since 2000. This during a pretty solid market environment.

2 - shorting. I've been checking short interest on ipos for years and until 2005 or so it always went like this: first month out there would be some short interest, pretty much the underwriting team responsible for that in the normal course of making a market in a new issue....after that for first year there would NEVER be much of any short interest. Near zero really across the board outside of the larger cap offerings.

Then sometime in '05 or so we started seeing hefty short interest as a % of float in a ton of ipos, some from first week public right on through....many though started seeing significant rises in short interest on any move up, no matter the company or valuation.

Hedge funds have changed the market landscape in many ways the past few years, most definitely with ipos.

frankly playing the ipo market is dangerous....even more so now with really no pricing support to speak of. The pay-offs can be quite nice of course as the beta with ipos in terms of volatility is way above the average stock....you've got to pick your spots though and now it is even more important to avoid deals that come public priced artificially high due to the hedgies grabbing allocations in size on anything decent..in order to flip usually.

interesting times..........a big part of what we do at tradingipos.com is help people avoid specific ipos as well as recommending others. The good thing is we've absolutely no incentive to recommend an ipo. This week was an awful week on the ipo schedule. We had 5 scheduled, only 2 came out the door and both broke pricing day. I recommended none of the 5, urging subscribers to avoid every deal this week both in allocations and aftermarket. If it isn't there, it isn't there. Next week however is a much different story. As usual a full analysis pice on every ipo every week at: