Every cycle, Wall Street rolls out a fresh batch of IPOs with massive promises attached to them.

Endless interviews and headlines explaining why this company changes everything.

I was actually talking about this yesterday with J.C. Parets because we tend to view markets through a similar lens, and one thing we both agreed on is how important it is to understand what an IPO actually is.

At its core, an IPO is a promotional event.

It’s literally a process designed to sell shares to the public.

That doesn’t mean the company is bad.

It just means you should understand the game being played.

Early investors finally get liquidity and Wall Street gets paid to generate excitement.

Often times the promotion is better than the actual stock.

That’s why my 3 -Step IPO process starts with skepticism, not excitement.

Because in markets, price matters more than storytelling.

The truth shall set you free, which is why we start with the truth about IPOs.

Most IPOs are introduced to the public at maximum excitement and minimum evidence.

That’s not where I want to take risk.

I’m not interested in catching the opening print or chasing the first vertical move higher.

In fact, I almost expect most IPOs to struggle initially because the IPO itself acts as an exit ramp for early investors.

Supply hits the market fast.

And that’s fine.

I’m not some scrooge sitting there going “bah humbug” every time a new company comes public.

I’m just calling a spade a spade and understanding the reality of the situation.

I prefer letting the stock mature first.

The analogy I always come back to is this:

I’m not going to be the first person in line for a brand-new drug.

A new cell phone? Sure.

A new flavor of Doritos? I’m man enough to admit it. 100%.

But a drug? No thanks.

I’d rather let everybody else figure out the side effects first, then evaluate the risk/reward afterward.

That’s exactly how I approach IPOs.

I give them time.

Time allows:

• expectations to reset,

• liquidity to get absorbed,

• and real price discovery to occur.

If the stock completely falls apart, great.

I avoided a disaster.

If it repairs itself later, there is usually still plenty of opportunity.

Once the initial hype phase fades, the IPO anchored VWAP becomes one of the most important levels on the chart.

Why?

Because it represents the average price participants paid since the company came public.

Not a story.
Not a promotional video.
Not a CNBC interview.

The truth.

And that reality makes it a massive psychological and structural reference point.

In weak trends, price typically fails below that level.

Cool. No harm, no foul.

We leave it alone and move on with our lives.

But when a stock eventually reclaims the IPO AVWAP and starts successfully holding above it, the character of the trend can completely change.

That’s when I start paying attention.

Names like:

Robinhood

That IPO promo left some people underwater for years.

I just sat it out.

Eventually though, we started seeing the IPO AVWAP get reclaimed and then turn into support instead of resistance.

That’s a completely different environment than the initial hype phase.

Now suddenly you have:

• improving trend structure,

• improving momentum,

• and buyers consistently defending pullbacks.

That’s a much healthier place to evaluate risk from than chasing the opening fireworks.

Palantir

I remember the initial pop in this one.

Friends were sending screenshots of the money they “made.”

Those screenshots slowed down pretty quickly after that.

But eventually the stock repaired itself, reclaimed the IPO AVWAP, and started behaving better structurally.

Does that guarantee success? Of course not.

But the odds improve dramatically once price proves institutions are willing to support the stock above that key reference point instead of dumping shares into it.

That’s the difference between a promotional event and an actual trend.

Coinbase

Another hype train that eventually got punched in the mouth.

And this is important because not all of these are going to immediately turn into

Robinhood or Palantir.

Some are going to spend years chopping around repairing damage.

But again, the improvement in character started happening after price worked back above the IPO AVWAP and long-term reference levels.

Honestly, I actually like the way Coinbase is shaping up right here, right now.

Not because somebody on TV told me to.
Because the structure is improving.

And that’s the entire point.

I only pulled a few examples here, but there are plenty more you can study yourself.

The common theme is that many IPOs require time.

Time to:

• get a few quarterly filings under their belt,

• produce real audited financials,

• establish an institutional investor base,

• and let the market figure out what the business is actually worth.

That process matters.

Because the IPO reclaim helps us avoid a lot of the initial IPO side effects.

At the end of the day, an IPO is still just another trade.

Not a movement.
Not a personality trait.
Not “the future.”

Just a trade.

And I think that mindset matters because IPOs naturally pull people into storytelling mode.

There’s this weird culture around: “I got in at the IPO price.”

Cool.

But sitting through a 60 to 80% drawdown isn’t some badge of honor. Avoiding it is usually the better outcome.

Take Genius Sports for example.

Imagine the genius I would’ve looked like sitting through that entire collapse just because I “believed in the story.”

That’s not discipline. That’s attachment.

And attachment is expensive in markets.

I’m not interested in emotional loyalty.

I’m interested in evidence.

So once I get the reclaim and acceptance above the IPO AVWAP, I still manage the trade exactly like I would anything else.

I define my risk.
I respect my stops.
I size appropriately.

Because failed breakouts will happen.

Whipsaws will happen.

Some IPOs will reclaim the level, suck everybody in, then roll right back over.

That’s markets.

And if I get stopped out? Fine.

You can always get back in later if the setup improves again.

There’s no trophy for riding a stock straight into the earth because you believed in “the vision.”

I’d rather take a small loss, preserve capital, and wait for better evidence.

That’s the edge.

Not prediction. Not promotion. Process.

Because over time, process beats promotion.

Anyway, that’s my two cents.

This week was ALL GAS NO BRAKES.

20 Charts in 20 Minutes.

But I’ll be honest…I think I ripped through like 30 charts.

I simply can’t help myself.

If you missed it, check it out.

Throw it on 1.5x speed and let it rip.

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The Sunday Stalk List

Tomorrow, I’ll break down more of what I’m buying in the Sunday Stalk List.

If you want clean charts, clear setups, and tactical insights, this one’s for you.

It hits your inbox every Sunday so you know exactly what to stalk for the week ahead.

Cheers,

Larry Thompson, CMT CPA

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