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Red-Hot IPOs Are Setting Up for Another Massive Rally

Stocks are streaking higher to kick off earnings season.

The Nasdaq Composite is resting at all-time highs. The S&P 500 is finally poking its head above a choppy range that has trapped the index since the winter correction. Even the Dow Jones Industrial Average is wiping the crust out of its eyes, gaining almost 100 points on Friday to extend its weekly gains to 2.3%, besting both the Nasdaq and the S&P.

Investors are getting sick of trade war headlines. Every new development last week had less impact on the markets as all eyes are focusing on upcoming earnings announcements. While we continue to see doom and gloom market stories dominating the airwaves, bullish trade setups are flashing across almost every market sector right now.

Bottom line: It’s time to shut out the noise and trade.

Here is your exclusive trade prep for the week of July 16th:

Tactic:

Earlier this month, we noted how 2018 is finally turning into a breakout year for initial public offerings. Tech IPOs are beating the market at a 16-to-1 pace so far this year, according to Bloomberg.

A string of successful IPOs has sparked an explosion of new listings. Renaissance Capital notes that 11 deals launched their offerings last week and 10 new listings are prepped for this week. Once again, biotech and health care names are getting the most love.

But before you run off and buy shares of every new stock hitting the Nasdaq, it’s important to remember that IPOs are one of the trickier trades on the market. It’s tempting to take a huge hack at them right when they begin trading, especially when you’re dealing with a hot name.

Sometimes it pays off, and other times you might get burned. Remember, we’re viewing these IPOs as potential short-term trades. We’ll ride a momentum move for a few days — then take the money and run.

Trade:

Chinese IPOs look ready to blast off again.

We’ve seen some crazy moves in China IPOs lately. Chinese live-streaming service Huya Inc. (NYSE:HUYA) debuted on the market in May. The stock jumped as much as 200% since its first day of trading. Of course, it also gave back a good portion of those gains once it cooled off. That’s why we have to concentrate on our timing when dealing with these crazy momentum runners.

Another recent Chinese IPO setting up right now is GreenTree Hospitality Group (NYSE:GHG).

Check out the chart:

Green Tree

GHG caught fire in early May, jumping from $11 to a high of $24 in a matter of weeks. After a sharp pullback in June, the stock is setting up for trade on the long side once again. If it can get its mojo back and make a run toward $19, we’ll pick up shares for a quick trade…

Takeaway:

Earnings season will continue to draw the herd’s attention this week.

Netflix Inc. (NADSAQ:NFLX) is one of the high-profile companies announcing numbers today. Some traders are worried Netflix won’t live up to expectations with a big enough earnings beat. After booking gains of more than 40% earlier this year on a short-term Netflix trade, we’re content to watch the drama from the sidelines.

For the record, I still wouldn’t rush out and short Netflix if it doesn’t impress this afternoon. Sure, plenty of folks think the stock way too expensive. But if there’s one thing this bull market has proven over the past year, it’s that these concerns aren’t at the forefront of most traders’ minds.

Meanwhile, Deutsche Bank (NYSE:DB) is kicking off the trading week with a big earnings beat. DB has been an absolute dumpster fire lately, with shares dropping to all-time lows just a few weeks ago.

If DB can build on today’s comeback move, we could see some bank bulls start to come out of the woodwork. That would be great news for our JP Morgan Chase (NYSE:JPM) trade. JPM has yet to gain much traction from its own earnings beat late last week. A sympathy bounce today would get this trade moving in the right direction…

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Rude Awakening PRO, The Seven Figure Formula and Seven Figure Signals. Over the past decade, Greg has helped build the small-cap and technical research teams. His analysis has appeared in Forbes, Yahoo Finance, Bankrate, and countless other publications. Greg is a member of the CMT Association...

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