A selling climax takes place when after a prolonged stock market sell-off, investors capitulate. They dump stocks. As a result of this panic selling, volume soars. And then out of nowhere, a sharp rally kicks in.
Since July 19 when all the popular indexes closed at new highs, the stock market “took a Brodie.” (That’s an old Wall Street expression for a sharp sell-off. It takes its name from an incident in 1886 when an Irishman named Steve Brodie claimed to have been the first to have jumped off the Brooklyn Bridge and survived.)
On Thursday, the Dow Jones Industrial Average plunged nearly 344 points from its opening bell to 12,517. That turned out to be the session low and marked a drop of 10.7 percent from 14,000.41, its record close on July 19.
Then — out of nowhere — buyers stormed into the market in the final half hour of trading. All but about 15 points of the loss had been recovered by the closing bell, a swing of about 673 points. The Dow briefly popped into positive territory and then ended slightly lower as the trades settled right after 4 p.m. The volume on the New York Stock Exchange soared to over 2.9 billion shares, up from over 1.9 billion shares the day before.
On Friday, before the opening bell, the Federal Reserve announced a cut in the discount rate to 5.75 percent from 6.25 percent. (The discount rate is the interest that the Fed charges banks to borrow funds.)
That put the lid on the stock market’s month-long sell-off.
From the standpoint of IPOs, if a stock market sell-off had to develop, this was the best time for it.
There are a few times during the year when the IPO market dries up. One slow period starts two weeks before the Labor Day break and extends to two weeks after. The other downtimes are from mid-December to mid-January and minor breaks around the Memorial Day and July Fourth holidays.
From July 17 through August 17, 60 companies have filed plans to go public. They expect to raise $9.7 billion.
Consider this: On Dec. 31, 2003, 49 companies had filed plans to go public. They expected to raise $8.9 billion.
A Virtual Star
Nothing can be done about the IPOs that have made their debuts over the last eight months, but a lot can be done about those planning to go public in the last third of the year. Bankers will build off the recent strength from the IPO calendar. Take a look at last week’s only offering as a shining example.
VMware (NYSE: VMW), a Palo Alto, California-based provider of computer virtualization solutions, priced its IPO at $29 per share on Monday evening, Aug. 13. The Dow Jones Industrial Average took a 207-point pounding the next day –– VMware’s first to be traded. The IPO opened at $52, popped to a session high at $55.50 and closed its opening day at $51, UP 75.8 percent from its offering price. On Friday, it closed at $55.55, up 91.6 percent from its offering price.
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