Almost a month ago, yours truly here suggested iQIYI (NASDAQ:IQ), as a company, had a bright future; being compared to a clearly-successful Netflix (NASDAQ:NFLX) is a telling accolade in and of itself. I also warned would-be buyers, however, that IQ stock was a risky short-term bet.
Up 125% from its IPO price at the time, it was only a matter of time before the profit-takers did their usual post-IPO thing.
Sure enough, IQ stock peaked three trading days later. It’s now down more than 30% from that mid-June high, and lower to the tune of 20% from the time I waved the red flag.
Hope you were listening.
The past is the past though. From here, traders only have one overarching question: What’s next? To the extent the question can be answered, the answer is, not much.
Although one can reasonably expect more of the same kinds of gyrations, the next two-and-a-half months are likely to be somewhat tempered action for one very specific reason. That is, the expiration of the so-called lockup period for the company’s initial (IPO) investors is Sept. 25.
That’s when a bunch of folks, a lot of insiders who got in on the not-so-initial-public offering, will be allowed to start cashing out if they want to. Most everyone else will be waiting on the sidelines to see what that crowd thinks of the stock.
Mark Your Calendar
It’s not a new nuance; initial insider investors of any company have been restricted from dumping shares into the IPO frenzy for years now. The aim of the rule is to, as it seems, prevent abuse of the bullishness that tends to manifest with public offerings.
It’s a nuance, however, that’s writhed its way into the spotlight in recent years as company founders increasingly realized an IPO was an effective, profitable way to “cash out” of their creation. In other words, the fine line between founding a company as a growth venture and founding a company as a means of making a quick buck was getting blurred.
Traders were worried last year Snap (NYSE:SNAP) would suffer when its lockup period ended, which turned out to be a legitimate worry. Ditto for Twitter (NYSE:TWTR) back in 2014, six months after its initial public offering.
IQ stock may suffer a similar fate on Sept. 25, or it may not. We just don’t know. In the meantime, with that uncertainty on the horizon, don’t be surprised if shares move less and less.
Still, there may be a handful swing trades to tap before that pivotal date arrives. You just have to know what to watch for.
Reading the Technical Tea Leaves
Unless you’re sure you can stomach the potential fireworks, you may want to make sure you’re out of any position, long or short, in IQ stock by Sept. 24. Or, if you’re a gambler, maybe you want to make sure you’re in a position by that time. Your call. I’m far more interested (right now anyway) with what’s apt to happen in the meantime.
To that end, the momentum is bearish here and now, but the conviction behind that downtrend is relatively low. The pullback from last month’s peak may have been little more than predictable profit-taking.
We’re zeroing in the volume data IQ stock has left behind over the past several trading days as our conviction barometer. Even after topping out in June, the degree of selling volume waned on the way down; the red volume bars got shorter and shorter. Yes, the green, bullish volume bars from last week were very short.
Remember though… that was around the Fourth of July holiday. Even the selling we’ve seen since then has been on muted volume, and Monday’s “up” volume was respectable. Tuesday’s bearish volume was again shrinking.
Interpretation? The folks interested in, and willing to sell, IQ stock are thinning out. Meanwhile, a few would-be buyers are starting to test the waters.
The rising Chaikin line at the bottom of the graph confirms that the overall volume-driven tide has turned bullish.
It matters. Until late September, the volume trend is likely to be the only real way of identifying which direction the undertow is moving IQ stock. And, the Chaikin line (in simplest terms, a volume-weighted momentum indicator) is the simplest way to identify that trend.
Bottom Line for IQ Stock
For the record, the impact of a lockup period’s expiration, if there is one, is generally short-lived. By early October, whatever is going to have happened to IQ stock will have happened, and investors will be ready to focus on the future from wherever it is at that point.
All the same, the immediate post-lockup action can be harrowing. It just depends.
Don’t be afraid to pick your spots in the meantime though. They’re just trades, to be clear, but given all the hype still surrounding iQIYI, there’s still some good tradin’ left to enjoy here.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.