Hot IPOs: Market Warning Or Sign Of Better Times Ahead?

Yesterday morning, the hot initial public offering (IPO) that opened for trading on the New York Stock Exchange was King Digital Entertainment PLC (NYSE:KING). This company is in the mobile gaming space. Almost everything in the technology sector has been rallying over the past few years. So it is understandable why the offering would be priced at the high end. The IPO was priced at $22.50 a share, but the stock is now trading around $19.00 a share, which is obviously lower than the offering price. It is safe to say that some shareholders are not too happy right now. At this time, this IPO can be considered a flop, but the coming days will tell us much more about the future performance of this stock.

As many of you know, there is a long list of high flying companies that are looking to go public over the next few months. Most of these companies do not make any money currently, but the stock market has been on fire, so it makes sense for these companies to try and go public. In the past, when this type of IPO euphoria has occurred, it was always a warning sign of a stock market that was filled with hot money looking to put in something. Just look back at 1999, and 2007, when companies were going public by the minute, all hoping to cash in. Does anyone remember when the popular private equity firm The Blackstone Group LP (NYSE:BX)) rushed its IPO out into the market in June 2007? That so-called hot IPO flopped and signaled a top in the stock market. As you might know, the stock market topped out on October 7, 2007 which was just four months after the Blackstone IPO.

Some companies that are looking to become public soon include Grubhub Inc (NYSE:GRB), Tarena Intl Inc ClA ADR (NASDAQ:TEDU), 2U Inc (NASDAQ:TWOU), Rubicon Project Inc (NYSE:RBU), and Aerohive Networks Inc (NYSE:HIVE). Many of these stocks mentioned are in the cloud computing space, but there are many more potential IPOs in other sectors that are looking to go public very soon. If history has taught us anything,it's that these so-called hot IPOs could be warning us that this stock market is frothy at best and possibly signalling as well that some sort of top in the stock markets is just ahead. Either way, as intelligent traders we should simply care about the chart—it will tell us when to enter or exit any of these stocks.