How IPO Pullbacks Work

  • November 30, 2001
  • Jeff Cooper

Strong demand (i.e., lots of
excitement about the company’s future) causes the stock to rise in the first
week. Short-term traders who were lucky enough to receive stock on the offering
take profits, causing a pullback. The growth funds, who did not get enough stock
on the offering, then come in and take advantage of the pullback, pushing prices
higher.

—Jeff
Cooper, from Hit
and Run Trading II (1998, M. Gordon Publishing Group, Malibu, Calif.).