The IPO Buzz: Hit the ‘Pause’ Button

Dating back longer than anybody can remember, the IPO market comes to a standstill by mid-August and starts to gear back up in mid-September — a four-week period surrounding Labor Day.
Just when the 2011 IPO market will make its debut after Labor Day depends upon market conditions. Consider the following:
Since 2000, the earliest post-Labor Day revival of IPOs came in September 2006 and the latest came in November 2008.
On Sept. 6, 2006, New Oriental Education & Technology (EDU) priced its IPO at $3.75 per share (adjusted for a 4-for-1 stock split on Aug. 19, 2011). The new shares closed on Friday, Aug. 19, 2011, at $27.50 — UP 633.3 percent from its initial offering price.
Market conditions in 2006: The Nasdaq Composite Index came off its year’s low on July 21 of 2,020.39 and ran up to 2,465.98 on Nov. 22, UP 22.1 percent.
In 2006, the new-issues calendar produced 240 IPOs, according to the U.S. Securities and Exchange Commission filings.
On Nov. 19, 2008, Grand Canyon Education (LOPE) priced its IPO at $12 per share. The stock closed on Friday, Aug. 19, 2011, at $15.04, up 25.3 percent from its initial offering price.
Market conditions in 2008: The Nasdaq Composite closed at its high on Dec. 26, 2007, at 2,724.41 and plunged to 1,268.64 on March 9, 2009, DOWN 53.4 percent. 
In 2008, the new-issues calendar produced 50 IPOs and only one after the Labor Day break –- the Grand Canyon deal.
2011 Outlook
Even though the three major U.S. stock market indexes are snuggling up against bear market territory (a 20 percent decline from a recent closing high), things might not be as woeful as some think.
First, the Bad News
  • The Dow Jones Industrial Average closed on Friday, Aug. 19, at its 2011 low, at 10,817.65, DOWN 15.6 percent from 12,810.64, its most recent closing high, set on April 29.
  • The S&P 500 closed on Friday at its 2011 low at 1,123.53, DOWN 17.6 percent from 1,363.61, its most recent closing high, reached on April 29.
  • The Nasdaq Composite Index closed on Friday at its 2011 low at 2,341.84, DOWN 18.5 percent from 2,873.54, its most recent closing high, set on April 29.
Now, the Good News
The sharp stock market volatility carried over from the previous week. Wall Street’s graybeards earlier pointed out that when you see high volatility in the stock market after a period of a decline, it generally indicates a bottom or bottoming.
There’s more from last week.
Bloomberg ran a headline: “Hedge Funds Most Bearish Since 2009.” The underlying story said, “Bearish wagers (short sellers) against global stocks at hedge funds have surged to the highest level since July 2009 as the European debt crisis and reports showing an economic slowdown cause the biggest losses in almost three years.”
That could be good news.
The old theory is the higher the short-sale figures climb, the more bullish it becomes for the stock market. Having said that, let’s flip back to July 2009 and the S&P 500 Index.
On July 8, 2009, the S&P 500 closed at its year’s low of 879.56, and from there, its upward surge started. By Aug. 3, 2009, less than a month later, the S&P 500 had crossed the 1,000 mark, and by April 23, 2010, it had closed at 1,217.28 — UP 38.4 percent from its most recent closing low. Not a bad run for nine months and a few weeks.
And the short sellers? Who knows?
Back to the Present
Even though the stock market is floundering and the IPO calendar has run into a seasonal quiet period, there are signs out there that things might not be as dire as some think.
We’ll find out soon enough. But it is too early to fold your tent.
Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinions.