Pushing the Wet Noodle on IPOs

As we await the seminal Tesla IPO (TSLA), the IPO market continues to disappoint. Last week's two tech IPOs, Motricity (MOTR) and Broadsoft (BSFT), both lowered their trading ranges then priced at the low end, and are currently 6-7% below even that. Solyndra, the solar startup that was visited by President Obama last month, canceled its IPO. Nat Goldhaber, a cleantech venture capitalist, remains bullish on cleantech IPOs but not on the solar sector, noting that Europe as been a center for solar and its austerity plans have dampened the solar industry. 

 

TechCrunch ran an assessment of IPOs and how the poor IPO market has impacted the leading companies. Their chart shows how meager the first day pop has been, and how the companies have tended to do poorly in the after-market. As a consequence, the leaders of this generation of new ventures - Facebook, Zynga, LinkedIn, Twitter, Skype - have so far eschewed the IPO and relied on generating cash flow and private investment to grow. Many of the later round investors are allowing the early founders and employees to partially cash out. 

It may be that we need a signature IPO - like Netscape in 1995 or Apple in 1980 - to spur the return of the IPO market. Many of the tech IPOs so far are not in that league, and instead fall into two categories: 

• late 1990s vintage startups whose investors are seeking liquidity after a long slog, and
• dashing cleantech ventures who need oil-tanker-loads of capital to build out at scale

Maybe Tesla can restart the IPO market, at least for cleantech deals. Even green-industry stock analysts are skeptical. It is a bit daunting to imagine a new company taking on the huge scale players in autos, many of which are already into electric vehicles, especially Honda and Toyota. Yet it is conceivable. Here is why:

• The last successful auto startup in the US was Chrysler in 1925. Chrysler got out when it was possible to launch against the scale of the leaders - it marked the transition away from innovation to scale economics
• There have been a number of other car startups between Chrysler and Tesla, but none with the game-changing potential of Tesla
• It seems inevitable that we transition the fleet to electrics. It will take several decades. Tesla marks the first startup of this transition
• Tesla may also mark the beginnings of a restructuring of the auto value chain, to become less vertically integrated and more like the consumer electronics industry, and to iterate models more quickly. If so, the scale advantage of the leaders will be turned into a cost disadvantage

Tesla is the bet on the future of cars, not the past. Electrics represent a generational disruption to the auto industry, and usually out of these periods new winners emerge. A discussion of their pitch is here, and you can see the roadshow presentation here. Key slide: building a platform, not just a car:

 

Disclosure: I have a small indirect interest in Tesla. 

Comments

[MHD]

Homebuilding stocks up 4-5% today. We humans really are a funny bunch!

[Account Deleted]

Dow Jones came down from a triangle
http://niftychartsandpatterns.blogspot.com/2010/06/dow-jones-triangle-break-down.html

[Trader John]

Anyone scalping this market today?
If so, what data-feed are you using?
Mine sucks.

[Michael]

Feels like someone is trying to push a beach ball down underwater and it just doesn't want to go down; atleast in the coal stocks that I am trading today.

[Steven_737]

Michael are you trading the 5min chart?

[Steven_737]

It seems that market had a minor wave 4 ;(or w of 4)
having had a 1-2-3 since the Monday top.

Now it is contemplating minute 1 of minor 5 down,
OR
the x of the wxy in minor wave 4...

cheers :)

[Steven_737]

iqfeed

[Mamma Boom Boom]

Today's action: right on target!

[Michael]

Steven,

Believe it or not, I trade the ONE minute chart on 4-5 large cap, high volume, high beta stocks.

:)

[barack0]

Pushing the Wet Noodle

Today's action: right on target!

Bottom line, MOMMA HAS BEEN NOODLING!

[Roger D.]

Big down day tomorrow, the kickoff to the downside -250+

Roger D.

[the general]

Roger,
I found the last labeled chart that you posted here most interesting and logical. Do you have any updates that you would care to share?

[Account Deleted]

S&P 500 Analysis after closing bell
http://niftychartsandpatterns.blogspot.com/2010/06/sp-500-analysis-after-closing-bell_24.html

[JT]

"Big down day tomorrow, the kickoff to the downside -250+" - Roger D.

Coming from you, I'm totally shocked.

[JT]

"Big down day tomorrow, the kickoff to the downside -250+" - Roger D.

Coming from you, I'm totally shocked.

[Philippine Fred]

up today which will continue in to mid week next then hold on to your skirts.

Anyone any ideas on the commomdity index? Oil breaking the 68 low will catapult it lower but some other commodities look ok. July looks a nasty month.

Roger must be all in short now, house, loan, car keys the lot......

[Account Deleted]

Eur/Usd moving up in hour chart
http://niftychartsandpatterns.blogspot.com/2010/06/eurusd-hour-chart-with-ichimoku.html

[Roger D.]

The JNK has a pretty clear chart. looks like a clear 5 down and now in wave 2 should end tomorrow am or decline at the open for the start of wave 3. It's likely that Friday will be a real gut check for the bulls and next week will probably test 1040. A nice little panic should test those new SEC circuit breakers next week.

Roger D.

http://content.screencast.com/users/parisgnome/folders/Default/media/6eef02a4-4457-4de8-b950-0a5a08d37f32/2010-06-23_2139.png

[DG]

looks like a clear 5 down

No. It's not. Or, I should say, the likelihood that it is is infinitesimal.

I'm curious why you find the need to use Elliott Wave Theory to "justify" your bearishness? You seem more motivated by "fundamental" considerations over "technical" anyway.

I see nothing in any of your posts that tells me you are a "chartist" or have any true desire to learn EWT in-depth, so why even bother making half-assed attempts to do wave counts, the "results" of which are known in advance, i.e. your wave count will ALWAYS be that we are on the verge of collapse? Your charts are so amateur on so many levels that they are a waste of everyone's time, including your own, although you don't seem to realize it.

Just say you are bearish for fundamental reasons A,B,C and stop even bothering with posting charts.

Again, don't shoot the messenger here, I'm just trying to save you the time it takes to create and post those terrible wave counts. You could use that time to do more research on the fundamentals or go outside and enjoy the weather. Both of which would be better uses of that time. On the other hand, if you want to get serious about EWT, read "Mastering Elliott Wave" at least 10 times and read every "Question of the Week" over at Neely's website as a supplement. In about 6 months maybe you'll be able to post a reasonably accurate wave count.

[Mamma Boom Boom]

We've now pushed a little deeper into this correction than I anticipated. But, it's still corrective, and still within corrective parameters, IMO.

[Account Deleted]

S&P 500 Trending down below the 50 Hour SMA.
http://niftychartsandpatterns.blogspot.com/2010/06/s-500-hourly-chart-trending-down.html

[Roger D.]

DG ,

You and me will argue until one is proven right or wrong.

Roger D.

[Sjaak Trekhaak]

I can see 5 waves down (completed) on the 15-minute chart of the Dow and SPX. Rebound coming up now?

[DG]

Roger,

You've already been proven wrong time and again. Every post you've made since you've been here has called for a resumption of the bear market and a crash and neither has really happened. We still haven't even broken November 2009's lows, for crying out loud.

If we crash in six months, you'll say you were right all along, but the market was wrong. So, there's no way for me to "win" an argument with you because clearly you will just continue to change the terms of the argument until you "win". I don't participate in such frivolities.

Again, you need to realize you are not a technical trader, you are a fundamental trader. Which is fine, it's just odd that you lack that self-awareness and try to justify your bearishness by slapping the most bearish possible labels on a price chart until it works.

Even Rosenberg, who's probably the best at laying out the bearish fundamental case, doesn't waste his time creating a lot of charts, although I do like his chart showing the multiple multi-month rallies in the Nikkei to make his point that it's never a straight line down, even in a vicious bear market.

I'm not even arguing your "wave count" because it's a waste of time to argue something so ridiculous. Plus, the way you've reacted to my trying to teach you something about Elliott Wave has shown that you are not even ready to admit that you don't know what you don't know. Assuming you are trading your wave counts, the loss of significant amounts of money (significant is relative, of course) will cure you of that bad habit eventually. When it comes to Elliott Wave, you are like a student in a first semester foreign language class who tries to tell the teacher how to speak the language. It would be like me, a native English speaker who doesn't know a word of Chinese, trying to tell a Chinese person how to speak their language.

[Bird]

DG, I like Roger's brave calls. Roger puts his position out there and takes his licks when he is wrong. His wrong calls mean we have to take what he says with a grain of salt, just like we do with most everybody else. Your offer to teach, while laudable, presumes that you know that what you teach is the answer. So it goes to that next level. The master himself, Neely, has apparently botched his own method, the method you turn to as the base of your knowledge. You claim to have solved his problems. You are in the process of proving, but have not yet proved that you've got it. So until you have done so, the jury remains out. Agree?

[Roger D.]

This is a very manipulated market. The big players mask their selling very well. Are you wondering if this is just a correction down??? I don't think so. We should start a acceleration down,soon.

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/fdd314a8-ac07-4aca-832f-e963f9f8b5a2

[usdollar]

I believe Roger D is on to something here, I at least went short yesterday. We are going down:).

[Account Deleted]

S&P 500 Hour channel with 50 and 20 Hour SMA
http://niftychartsandpatterns.blogspot.com/2010/06/s-500-hourly-channel.html

[Steven_737]

Steven_737:
It seems that the market is in the 5th wave of the 5th since Monday's top AND that this 5th is an ending diagonal, one minuete wave to go - the 5th of the ED.

a failed 5th (of the ED)- giving a double bottom on 5 min chart - is not out of the question...

cheers :)

[DG]

Bird,

There's a fine line between "brave calls" and crying "Wolf!" when there is no wolf.

Yes, I do think that Neely has, as the title of his book implies, "mastered" Elliott Wave. Yes, I have tried to push it further by adding the idea of "market regime" (linked back to the Elliott concept of Progress Labels) and "toggling" between trading strategies to provide a best fit for the market regime in question. I believe in "mastery" in general and I am NOT a relativist. If I recall, you have mentioned being a lawyer in the past. Well, would you go to a lawyer who graduated last in his class from some no-name school and barely passed the bar or would you go to the guy who graduated first in his class from Yale? All things being equal, of course, since the "last in his class" lawyer may practice in a small town where everyone loves him and your case just happens to be being heard in that town and the Yale guy is a complete unknown there. So, yes, there are exceptions.

Also, and I've said this before, I also passed through the "Roger D"-stage of Elliott Wave knowledge at one point. EWT is certainly not something one is born knowing (although I do think some of the pattern recognition skills are innate). When I see Roger's charts, I'm reminded of the MANY, MANY incorrect wave counts I've put together in the past. So, I've "walked a mile" in Roger's shoes, so to speak. I'm not just claiming to know more than him based on some general claim that I'm smarter than Roger. His IQ may outstrip mine by a mile. But, I sure as hell know more about EWT than he does. No question about it.

But, it isn't even exclusively my claim to have superior knowledge per se that makes me say that Roger is just plain wrong and grabbing at straws.

The consistency of his message is actually its greatest flaw. When is the last time he called for a rally? When is the last time he said that we would not drop "within hours" or "the next day"? Yet, we have rallied many times within the past 6 months that he's been posting and, while I haven't run the numbers, I'd be shocked if even 1/3 of his calls for big drops "within hours" or "tomorrow" came to pass and certainly not at the scale his wave counts imply (i.e. the dreaded "iii of 3 down"). Do you like his "bold calls" so much that you're willing to tolerate them being wrong 2/3 of the time (disregarding for the moment the "winner to loser" ratio implicit in those calls, which, I would also venture to guess doesn't overcome the very low winning percentage. Of course, Roger could answer these questions by keeping a running track record of his calls, yet he doesn't. Why?)

I'm all for aggregating decent sample sizes before making a judgment on a trading method, but most statisticians will tell you that 30 is a decent size and Roger is WAY past 30 "the end is nigh" calls. Given that context, I have no hesitation to say he doesn't know what he's doing when it comes to Elliott Wave. Funny thing is that I don't necessarily disagree that this is a bear market rally or that the market has gotten ahead of the fundamentals. I'm just not ready to don a sandwich-board and proclaim the end of the world and none of Roger's charts convince me that I'm wrong in that. More importantly, neither does the market's behavior.

[Account Deleted]

Ford Motor co Triangle breaks out in hourly chart
http://niftychartsandpatterns.blogspot.com/2010/06/ford-motor-co-triangle-breaks-out.html

[JT]

This is one of DG's best laid out arguments that I have seen in quite awhile here. And believe it or not, I agree with "DG" 100% on this.

Roger is not a technician, nor is he a technically based trader. In fact, one actually must wonder if he trades at all, because if he really had "skin" in the game and followed all of his massively BEARISH calls over the past 6 months, he'd have very little capital (if any) left from being so utterly wrong.

Let's face it, Roger simply takes his fundamantal BEARISH "crash" bias and applies it to everything that he sees, whether it is a chart, a macro-economic article, or a pizza with anchovies on it.

As DG points out above, it's amazing that anyone here seems to find credibility and VALUE in all of Roger's "Bold" calls that have done nothing but put a debit in his paper-trading account.

[Michael]

As DG has pointed out, David Rosenberg who is the former Chief North American ECONOMIST for Merril Lynch (now with Gluskin-Sheff in Canada) lays out the bearish case in an amazingly eloquent manner. In fact, he's been waxing poetically for the past year about how things are so incredibly BEARISH for the US economy and stock market.

The only problem is that he has completely underestimated the power of a liquidity driven US equity market, and as a result, has been flat-out WRONG for months on end while the S&P rallied 400 points in his face.

Rosenberg makes for interesting reading, but if you actually IGNORED what prices in the market were telling you and stubbornly held on to his forecasts, you'd be Bankrupt as a trader, and not even in the "game" as an investor.

That's the truth.

[Bird]

Roger is free to speak for himself. But part of the problem is that many of us may think that we are staring at a longer term down signal, and trying to anticipate when it will get triggered. So Roger could be right and yet sound wrong for several weeks.

Anyway, Roger's calls aren't really the point, at least to me. If Neely's method really constitutes mastery, then it should be predictive, otherwise it is just a trading system with the probabilities somewhat in its favor...sometimes.

The question is gotten at this way: when you apply Neely's rules, as refined by you, with perfect expertise, does it always work or just work a little more often than not? If it is the latter, then it is a far cry from what the theory once held out as its promise, alternative counts notwithstanding. And if it works but for the troubling detail that alternative counts are almost always possible, then we all need to keep looking.

[Mamma Boom Boom]

>it's amazing that anyone here seems to find credibility and VALUE in all of Roger's "Bold" calls <

It's because this site has almost 'no' real traders/investors on it, any longer. Most posters are just internet surfers.

[Steven_737]

Michael,

what are you up to?

what setup are you watching at this point ??

cheers :)

[Bird]

Let me say another thing about alternative wave counts. If at almost every turn you find one, then we should not kid ourselves. It is not very far from saying, "the market will go down, unless it goes up.". There are cases when this isn't quite fair, as in the 1 in 100 set ups when there is only one count, with no alternative (and the question here for the experts is--do these then successfully predict what follows 100% of the time or does the wave structure sometimes get all wet--which is a rationalization for the theory being all wet.) The other exception is when the lead wave count, if correct, has a big predicted result, which skews reward-risk way in your favor. But really that is true by virtue of the scale of the chart as well. A monthly turn via a Gann timing signal, if correct, also could have a massive result.

DG, I have high hopes for your expertise. Your blog may prove you out. Please summarize your results so far. Thx.

[Steven_737]

Long 1858.5 3 cars

[Steven_737]

raise stop-loss to 1857.5

[Steven_737]

targets 1863 and 1866

[Steven_737]

took 1st car off at 1862

[DG]

Bird,

Yelnick's mentioned a few times that the top traders at major firms tend to be right about 55% of the time, so clearly they make their money from being right with a high "winner to loser" size ratio, i.e. they identify price extremes based on flawed premises, either from "overvaluation" or "undervaluation", which then revert to their mean and from leverage (30 to 1 leverage will turn even the smallest mathematical edge into a billion dollar payday over time). They don't make their money from being "right" all the time. That fact stares us in the face as developers of trading methods in a way that simply MUST be respected.

With that as the context for trading "success" metrics, I find it hard to believe that there is a method out there that will enable a quantum leap from 55% success to even 70%, much less nearly 100%. In that context, Neely's 58% success rate on the Weekly timeframe over the past 4 years actually seems pretty close to the upper echelons of performance and that's his performance without the "filters" I've said he should be using, based on my analysis of the 42% of his trades which fail. Take those "false positives" out and his success rate tops 70% (i.e. 30% of his trades are better than even money to succeed, yet fail, for whatever reason) and his winner to loser ratio is over 2. That's with a sample size of 49 trades over 4 years.

Now, apply 30 to 1 leverage to that and tell me how someone trading that method won't be the richest man in the world within a matter of years? Also tell me how 99.9% of the trading world wouldn't look at those outcomes and say "That guy's on to something?" Yes, maybe 0.1% will say "Yeah, but he's only right 70% of the time!" That 0.1% may have a philosophical point, but the 99.9% would probably rather have the money.

[Steven_737]

raise stop loss to 1859

[Steven_737]

1859 stopped

[DG]

Please summarize your results so far. Thx.

Since I started the blog on June 1st, I'm down 0.26%. Since I started using those trading rules in January, I'm up 10.6% (market's down about 5% over the same period). If you look at the backtest to last April, the rules are "up" 38.4% and market's up 30%. Average of 0.98% at-risk on each trade.

The tweaks to the rules that I made this month, to codify re-entry on successful set-ups that get stopped out with a gain and codify entry on opening gaps, have added to this month's gains, so I will keep them going forward. I assume that they would have added to prior gains, although that's just an assumption based on this month's experience and prior markets may have differed.

[Steven_737]

market is likely in x wave of a w-x-y wave 2

+++

[Bird]

Mamma, would you summarize the tools you use to make your calls?

[Steven_737]

preliminary targets for wave 2:

ES 1099 to 1106

NQ 1890 to 1902

:)

[Mamma Boom Boom]

>Mamma, would you summarize the tools you use to make your calls?<

I doubt that you have enough money, to get me to do that!

[Bird]

I know that you're all gonna hate this, but my last trade was the exact opposite of what DG describes.

Years ago when I was studying the circular geometry of the markets I had a "waking dream" which was of a hummingbird flying in the middle of a bird cage in which the bars were far enough apart that the bird could escape. (Hence my posting name.) The message about the markets, which I have been trying to fathom ever since, was that the hummingbird chose to stay in the cage. On Monday, which was a busy day for me at work, a small, bright yellow bird came to my office window and insistent stayed there for quite a while before flying away. Not quite a hummingbird, but close enough, and perhaps the first time it has happened in the 4 years I've been in this office.

I knew what to do. I put aside my work and looked at the charts. Yes, the geometries for the ends of the upmove were potentially in place. I went agressively short.

Now this is the silliest thing in the world. But I had no doubt about it. I do not "believe" in trading by intuition. I think that there is something backwards about it. I would not have put on the trades if the geometry did not back it up. But my strange experience has been that when I solely approach my trading from a purely rational basis, based on my "rules", it just doesn't tend to work out, at least not as I expected. It gets even worse the more systematic and certain I am of my rules.

So when things have gone their best, I trade by talking to birds. The outside and the inside are one, as Jung has theorized. I do not understand it, but I am pretty sure that life isn't quite how we logically imagine it to be.