IPOs in the spotlight

12/08/20
  • DT pushed to five-week high after rallying off key support
  • NCNO broke out to three-month high on Monday
  • Clear paths to challenge all-time highs?

Many people may be looking forward to this week’s IPOs, but traders have been treated to interesting moves in many of the stocks that have entered the ranks this year and last.

While some names, including Snowflake (SNOW), Lemonade (LMND), Unity (U), and Sumo Logic (SUMO), have recently led traders on a foot chase, others appear to be potentially regaining upside momentum after making significant pullbacks. For traders trying to avoid chasing prices, these are the ones that may inspire deeper dives on their trading screens.

For example, Class of 2019 IPO Dynatrace (DT) tentatively pushed above its October-November highs yesterday, but more importantly, the stock has rallied more than 15% since November 10, the last time it tested the support level dating back to its May-June lows:

Chart 1: Dynatrace (DT), 8/1/19–12/7/20. Dynatrace (DT) price chart. Short-term breakout?

Source: Power E*TRADE


This cloud-optimization stock originally mounted a 143% rally off its March low to hit a record close of $47.09 at the beginning of September, then gave back almost half that move when it fell to its November lows. If the tentative upside breakout holds—and the tech sector’s recent resurgence maintains its momentum—bulls may look for the stock to at least challenge its October high around $45, if not its September high.

Moving on to a more freshly minted IPO, financial software specialist nCino (NCNO), which has been trading for a little less than four months, jumped more than 6% intraday yesterday. Unlike DT, this move  marked a definitive breakout above the stock’s September and October highs and leaves no obvious technical hurdles to a challenge of the stock’s record high of $103.95:

Chart 2: nCino (NCNO), 7/14/20–12/7/20. nCino (NCNO) price chart. Clear breakout.

Source: Power E*TRADE


Like DT, NCNO’s recent push has come after a significant pullback, in this case three tests (in October and November) of support around $68.

Risk-conscious options traders looking for NCNO to make a run at its record high may see advantages in a call spread. Yesterday morning, for example, a February $90–$100 call spread cost roughly $360 (the position’s maximum possible loss) with a maximum potential profit of $640. The February $90–$105 call spread could be purchased for $480—a slightly higher cash outlay, but with a maximum potential profit of $1,020, it also offered a slightly better reward-risk ratio (2:1).

Market Mover Update: The Nasdaq 100 (NDX) tech index kicked off this week by following through on last week’s relative strength, trading in the green yesterday while the S&P 500 floundered in the red. Ciena (CIEN) wrapped up its 10th-straight up day, edging into its big September 2-3 down gap and pushing the January $45–$50 call spread from 1.85 to around 2.58 (see “Tech equipment check”)

Today’s numbers (all times ET): NFIB Small Business Optimism Index (6 a.m.), Productivity and Labor Costs (8:30 a.m.).

Today’s earnings include: AutoZone (AZO), G-III Apparel Group  (GIII), Chewy (CHWY).

 

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What to read next...

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