Learn to do Technical Analysis, Next Group Class November 18!
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Share Lockup Expiration Dates can be very volatile. A lot of people have a misconception that because more shares can be added to the float, it is a bearish event. That is not necessarily true, and as a matter of fact, there have been some major runs each month before, on, or shortly after the share lockup expiration date. Generally, the share lockup expiration date is when a large chunk of shares held by some initial investor is legally allowed to be sold. The shares don’t have to be sold, and the investors don’t have to stay quiet about their intentions.
Usually, the scenarios where the expiration date is bullish is when in the months leading up to the date, the price has been falling. The investors who have their shares locked up are usually big pocketed, angel investor types, who want a return on their money. When they’ve seen the IPO go through and the price has been steadily falling since then, they might not be as willing to sell those shares at that point. Whether it be a coincidence, or some sort of manipulation, is not our accusation to make. But when you see the AccumulationDistribution rising during a downtrend in the days leading up to the share lockup date, that’s a HEAVY signal from the technicals that some entity is front loading the event.
Another scenario where the lockup expiration date might be bullish is when the investors involved come out and declare that they won’t be selling, they believe in the company and want to continue to participate at the ownership level. That’s great to hear for investors, as the short term guys take it as a sign that there won’t be a sudden dilution and the long term investors get someone with large pockets (and presumably a business savvy individual) has confidence in the company.
However, the event can just as likely be very bearish! If the company has been doing incredibly and the original investors have this sudden chance to claim their windfall, there might be a selloff. Or if the shareholders publicly announce they want to sell some or all the shares, that could have a negative impact on the share price.
For share lockup expiration dates, you often see the “Runup” traders, who buy the rumor and sell the news, attempt to position themselves in when the price is flattening out after a long downtrend. But they might not be looking to sell the day of the lockup expiration. If the price hasn’t popped and the insiders haven’t signaled they want to sell, it might be worth holding the shares into the event and the Afterglow period. Often during the runup or afterglow periods, there is some PR or volume surge and the shares suddenly spike. That is the short term trade we look for using the 1hour candle technicals, the MACD, Williams %R, TTMTrend, PPS, Scalper, etc.