Let’s pretend for a second we’re trying to explain to an alien how the weather works on planet Earth.
When the sky turns dark and cloudy, we might tell him, this indicates rain — perhaps even thunderstorms. However, cloudy skies do not necessarily signal when a downpour will start or how long it will last if it does start. After all, the sun could break through before an umbrella is needed. All that said, when the sky turns ominous, it’s a good idea to have your umbrella handy — just in case.
Now let’s pretend we’re talking to a brand-new investor and apply the same explanation to some less-talked-about stock market indicators. They “indicate” but don’t guarantee a particular market development. Nor its timing should it develop. But, it’s a good idea for investors to be on alert.
One such stock market indicator is the initial public offerings market. It got red hot around the peak of the dot.com frenzy back in the year 2000 and also near the time of the 2007 stock market top.
With that in mind, our just-published September Elliott Wave Financial Forecast discusses the IPO market here in 2020. Here’s a chart and commentary:
It’s official; the market for initial public offerings is as hot as it’s been since the dot.com mania. The chart shows the monthly total for IPOs starting in 1999. In terms of deals, the boom of the late 1990s is still of a larger scale, but the 42 offerings in July of this year is the highest total since August 2000. The second highest total since 2000 came in November 2007, when 39 IPOs came to market just as the 2007-2009 bear market started. A surge in IPOs tends to occur around major stock market tops, with a final last-gasp spike taking place after the stock market peaks.
Indeed, here’s a Barron’s headline from August 31, 2020:
Get Ready for a Crazy Wave of IPOs.
What’s more, our September Financial Forecast also points out that, similarly to 1999 and 2000, many IPOs and prospective IPOs today are money losers, or even lack revenues.
As financial history suggests, such unbridled optimism usually does not last indefinitely.
Now, as suggested a moment ago, the IPO market is an indicator — and a single one at that. It does not say whether the stock market will plummet next week, next month or whenever. It simply suggests that an investor should be prepared.
However, the Elliott wave model does offer high-confidence market turn insights.
Learn what our Elliott wave experts are saying about the stock market’s price pattern.
Follow the link below to get started.