Did Hot New IPO Stock iQiyi Go Into A Climax Run? No, Here's Why
DAVID SAITO-CHUNG6/04/2018
IBDChinese video streaming firm iQiyi ( IQ) has rallied in four of the past five sessions, rose as much as 14% intraday Monday, and made a new high of 32.40.
So, is the recent price action a climax run, and thus a sell signal?
No. The quick reason: iQiyi simply hasn't shown the necessary size of gains that typically precede this offense-type sell signal.
In a climax run, a stock goes up in a nearly vertical manner after rising steadily for months or years. Statistically, the stock will also rise 25% to 50% within the span of just a couple of weeks. It may also rise in seven of the past eight trading sessions, or in eight of 10 days.
IQiyi has vaulted 42% in just five sessions. But in a typical climax run, most market leaders will have broken out of a base and rallied for a minimum 18 weeks. They usually will have already doubled, even tripled, in price, before staging the climax run. IQiyi fails to meet these criteria. The company debuted less than three months ago on March 29, pricing its IPO at 18 a share.
At Monday's peak, the total gain was 80%.
Still, the big swing seen in Monday trading is enough justification for holders to take at least some profits off the table. Why? IQiyi broke out of a three-week IPO base on May 10, bolting past a 20.60 buy point. The gain from that proper entry has now exceeded 50%.
One of IBD's top offense-type sell rules is this: Take gains in most of your stocks when the breakout achieves a 20% to 25% advance from the proper buy point. If you have huge conviction in the company, then aiming for a 30% to 50% gain is fine. But at some point, you'll want to lock in gains before the winner goes into a natural price correction.
The Baidu ( BIDU) spinoff is seen as the Netflix of China, providing a platform for high-quality videos over the internet. In addition to original content, iQiyi also offers live broadcasts, online games and books and e-commerce services.
The company's sales jumped 56% to $2.6 billion in 2017, but the company also lost $3.86 a share.
Analysts see iQiyi posting a net loss of $1.37 a share this year and a loss of $1.09 in 2019.
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