All right. So in today's special episode, we're going to talk about the mysterious Chinese IPOs This has been a trend. It's not a new trend, but it's certainly one that Traders have been talking about quite a bit over the last few uh weeks we've had some crazy moves in. Chinese IPOs I mean one of the biggest was a stock that went from about 30 40 a share up to over two thousand five hundred dollars a share.

and I'll show you the chart on that one it was HKD This stock. This is the single biggest move I have ever seen I have never seen a move that big I've been in the market for a long time I've never seen something like that. It was from twelve dollars from twelve dollars all the way up to twenty five hundred dollars a share. How does that happen? Well, that's what we're going to talk about in this episode and I'm gonna share with you.

Um, some of my takeaways from this recent Bloomberg article about Wall Street's mysterious Uh, 2 200 percent IPOs where they're coming from a small broker in New Jersey But you know I it's not just them, this stock HKD wasn't they weren't the underwriter for it. So uh, we're gonna go ahead and get started. We're going to talk about this. um, sort of interesting subject of Chinese IPOs And you know I'm hoping that I don't see a, uh, you know Chinese a car at the end of my driveway with like diplomatic plates on it coming to get me.

So I want you to know that I know Kung Fu And I'm also an expert in the art of karaoke, so please uh Go Gentle on me? All right? Uh, So here's the thing. um I Don't think that this is necessarily an issue with this individual broker that's bringing IPOs onto the market I Think this is a a bigger issue with Market making in general. So I want to talk about Market making? but uh, let's first look at some of these recent IPOs and just you know sort of set the stage of how crazy they are. Okay, so HKD obviously absolutely insane.

If you go to the NASDAQ um IPO uh website you can look at HKD for instance. so HKD was the IPO Um, they have the auditor company Council They have the underwriters here. This one particular underwriter that Bloomberg was did an article about uh wasn't one of the underwriters of this stock. The overview here: the ipo'd at 7.80 and they offered is a 16 million shares.

Let's see. 16 million shares. All right. So they sold 16 million shares at 7.80 now.

I If you want to get a calculator out, um, let's see, we could actually pull a Google sheet. uh I'm curious exactly how much watch the uh the company was valued at at its peak. I Mean obviously it became probably one of the most valuable companies on the stock exchange for just a moment, right? I Mean you could do the math yourself. It's 16 million shares times? Uh, 2 555 a share.

Someone do the math real quick and tell me what it is. Um, and don't give me a bunch of commas because I don't even know how to read that big of a number. Just tell me in billions how big it is. All right.

So obviously this was a crazy stock. A crazy move. And you know the underwriters and institutional traders who got a piece of this IPO potentially could have made a lot of money. So Michael's saying 40 billion dollars, 40 billion dollar company.

And you know you could look at the financial of the financials of this company and ask yourself whether or not it's actually worth 40 billion. And of course the answer is that it's it's not. Um, And naturally the price has come back down And so this was one of the ones that triggered sort of a whole round of momentum on Chinese IPOs But none of this is new. We've been trading Chinese small cap stocks for years and years and years.

So in this article here on Bloomberg um, they say Network one's microcap listing stand out for outsized moves U.S Market transfixed by a run of Hong Kong style wild Swings now I I Don't know a lot about the Hong Kong market and what it's been like over there, but um, this article says Network One Financial Security says underwritten six micro Cap IPOs This year that have surged by an average of 2190 percent on their first day of trading. Come on, are you serious? So naturally the next IPO that they're the underwriter on, you're probably going to be thinking I should buy it Well, not so fast because they've also had a history of dropping 75 from the high, some as much as 98 percent. All right. So this is Um and boosted Securities This is an underwriter that um had a lot of big I mean 210 is nothing to sneeze at right? I mean this is a big move as well.

They were Underwriters for a couple of huge small cap IPOs last year I'm pretty sure W and W was an IPO that they were the underwriter on this one went to 160 bucks in the first day right now Wnw Wnw stock now I'm looking at the name and I am wondering could it be is that Chinese it is once again now Okay, okay so we're seeing that this is common among different Underwriters but now the stock is back at 80 cents hit a high of 160 bucks. So in this article here, um they they caution of course the risk of how much these drop big moves in tiny stocks are nothing new on. Wall Street Of course that's true. uh and generally as a momentum Trader I like trading these types of stocks because I like trading things that are making big moves right? I mean a big move is a big move.

One of the most striking examples was um ad Atxg which soared 13 000 percent ATX Cheat. Okay, well, in fact, that move was not um, even as big as HKD but it was pretty crazy. It went from 12 to 656 dollars a share. Obviously in that day, there was a lot of opportunity.

if you had the risk tolerance and that's not going to be for everyone you know, that's this is kind of like the Wild West. These are pretty crazy stocks. So uh, it was briefly, uh, bigger than about one-third of S P 500 Index members despite having less than 13 million in revenue for the year, ended in March The next day it failed 30 bucks. All right.

Um, So and then they say this trend is eerily familiar to Market participants in Hong Kong Uh, which was a hotbed for mysterious moves in tiny stocks before regular regulatory Crackdown brought new offerings virtue to a virtual halt. So these small Chinese companies that might have otherwise listed in Hong Kong turned to the Us as an alternative and this uh, underwriter, but they're not alone has emerged as one of the most active players in this growing corner of the market. So now if we look at some of the stocks that um, that Network one was the underwriter for they they have their website which you could of course go uh, check out and they have under the website section they have transactions and so under the transactions they note some of the other stocks that they were the underwriter for Stbx Stbx. this stock goes up to 48 dollars in one day and then comes all the way back down to two right? Meg l Meg L This stock went from uh, forty nine dollars to 249 dollars.

Back down at four bucks now I lag I lag this one uh again. Huge move. It goes all the way up to twenty six dollars is back at two Two dollars now G Sun Gsun this one has made Moves a couple of different times to 95 sold off came back up. Crazy move All right, there's a couple others I'll go over in a second.

So what you can see on uh you know is this sort of this pattern this trend. So now let's talk about um and maybe you know speculate for a moment. Uh and that was just a few they've done I mean you can look back, they've done so many. Um Chinese IPOs They did Wafu wafu.

This was one that um, you know was a few years ago but has just had some crazy moves in the past. so that's one of the ones that they're the underwriter for. Mdjh you might recall this was one that they were an underwriter for. made some big moves HJ Hjli that was another one.

so there's been I Mean there's dozens, dozens. Gnpx? Um, Lfin? They were the underwriter for Lfin. You guys probably remember that one that was absolutely crazy, right? Okay, so Chinese there's a bit of a trend that some of these. Chinese IPOs Go.

Um, go crazy. And and hey, by the way, for those of you guys tuning in on, Um YouTube Thank you for hitting the thumbs up for every thumbs up we get for this episode. I'm gonna donate a dollar to charity, so thank you guys for hitting the thumbs up and helping this channel grow and become maybe the most popular channel for those who are interested in day trading. Let's switch over to the Whiteboard and let's talk about the role of a market maker.

Okay, so because I think this is an important component here. So Market Maker: So a market maker, as you know, probably sits on both the bid and the ask of a stock. So they'll be on the bid sitting there to buy shares. You know, let's say at three dollars and then they'll be on the ask sitting there to sell shares at 310..

So when they buy a share at three dollars, you know, let's say they buy 10 000 shares at three and then they turn around and sell those 10 000 shares at 310, they've made a profit of one thousand dollars. They've made the profit across the spread. And so a market maker is allowed to do this. They're regulated and and They're you know, approved to be able to trade in this in this way.

And of course, they use automated trading algorithms and things like that to maintain the bid, ask, spread, and to try to maintain a balanced position. So the best Market maker at the end of each day will buy and sell an equal amount of stock. Maybe they'll buy, you know, 500 000 shares and sell 500 000 shares, right? And maybe they'll make fifty thousand dollars between the spread. Let's just save just just for instance, right? So all day long they'll be trading trading trading, and this will be more easily obtainable.

Possibly on a stock that has a higher float, uh, better liquidity. You're not gonna be able to probably do that on a small cap stock, but just for instance. Now, one of the problems here is that if a stock starts surging up really, really quickly when they're making the market and they're on both the bid and the ask, they have to be very quick to pull their order for ten thousand shares and move it up. you know, to 320..

if the stock starts moving it up, moving up, and then pull it again and move it higher. They can't just sell 500 000 shares at 310 because then what happens when the stock goes to 410? they're down 500. Grand What happens when it goes to forty dollars dollars? They're down. You know, 30 million dollars Or Five Fifty five million dollars I Mean it's it's you know, it goes, then to 400.

you're talking about multi-million dollar losses and so this is the risk that market makers take. Now they're compensated for that risk by being allowed to profit from the spread, buying on the bid, and simultaneously selling on the ask. However, market makers are going to have to make a risk decision that with some stocks they're they're going to choose not to make the market for them. And so what you'll find is that market makers are required to make the market for a certain number of stocks.

But there can be stocks, They say no, that's too risky, not going to touch it. And so here's the problem. Now let's look at the Whiteboard again. Typically you would have um, you know on a um You Know Your Average stock.

Whatever, you would have three dollars, then you'd have 298, 298, You know 295 to 90 to 80 and then on the at this is on the bid and then on the ask side you would have 3, 10, 3, 15. You know, 321. Whatever it is three you know 28 I'm just making up numbers but you get the idea. 331.

Okay and these are going to be all different market makers who are making the market All right. So um, here's the problem when you have market makers who say no, this stock is too risky, they're not going to be on the bid or the ask, they're gone. Then you have another Market maker who's like nah, I can't touch this, they're gone. Then you have another one who says no, not for me and then what are you left with? You're not left with many market makers and so this creates a very thin Market There's not a lot of people making the market and so that means who's here on the ask? Selling shares? Some insiders maybe, but usually on an IPO What's common with IPOs There's a lockout period.

so insiders cannot sell. Then who's selling? Hardly Anyone who's buying People who like China stocks. People who think that these China stocks are going to go to, you know, a hundred dollars, Two hundred dollars. And so with lots of buyers and an absence of Sellers and an absence of market makers, these stocks end up making a really big move.

Now, if there was a requirement to make the market on these types of stocks, you would have better liquidity, better liquidity would reduce the volatility, and these would most likely not make one thousand, two thousand, fifteen thousand percent moves. But you know at the current time, uh, it's it's not the case. And so I think that the issue here, really, uh, is just that these stocks are known for being very volatile. Micro cap, Small Cap IPOs are known for being volatile and as a result, there are fewer market makers that are making the market for these stocks and that creates an absence of sellers.

which then given that we're now sort of in, this little trend of this happening creates this surge of buying. But then likewise when the stock starts to roll over and people start saying well, it's rolling over and I'm not going to be the guy you know who buys the dip on HKD at two thousand dollars a share, all of a sudden you don't have any buyers on the bid and then the bid starts just dropping right? So now you're getting the bid drop because there's no one there to absorb sell orders. and so you get these really big swings in the market. So you know I'm not here to say you know what's uh, what should happen I mean this is just the market we're in.

It seems like if uh, Regulators don't like this, that they'll probably have to do something to change it. Um, and it's I think it's going to have to do with Market making although they could create some minimum number of shares that a company has to IPO in order to create. maybe just, you know, more liquidity in general through that through those means. But you know, realistically, it's true that there's some people out there who have made a tremendous amount of money on these stocks.

and obviously we know that most insiders are you know, not able to sell into these types of moves. but we don't know what kind of shady things might go on behind the scenes. We don't know, right? So we're just left here speculating if something Shady happened or if this is just the result of really the mechanics of the market with a lack of Market making and poor liquidity. But the fact is, these have produced some really phenomenal moves.

and so you know when I look at a small cap stock. My whole approach, you know, as you guys know, you know, not to, um, you know, just be a broken record. But my whole approach is to try to find opportunity right? And volatility is opportunity. So when I got started trading I had a relatively small account so I wasn't going to trade stocks like you know.

U.S Steel right? U.S Steel This is a 18 stock. I mean it's it's it moves over the course of days, but not much you know, a couple, you know, 40 30 cents. It's not predictable. So what I started realizing was that my best profits were coming from small cap stocks that were going up 20, 30, 40 in one day.

And of course when we had a stock like a Drys or you know, some of these other ones that would go up a hundred percent in one day, you know some of those became uh, you know, massive winners for me. And so I started looking for more of those Wild Card stocks. and uh, you know, obviously um, we've had more and more of them over the last few years as we've had more interest in trading in general as some of these small caps of ipo'd and you know it's just and perhaps with changes in um, the Hong Kong market, sending more Chinese IPOs to the US market has given us more opportunities. but you know my focus ultimately is just to try to find for to start with one good trade a day and once I've broken the ice with one good trade and I've made a little bit of profit then I use that as a little bit of a profit cushion to take trade two if it works and I'm green, then trade three Trade four trade five and you know today's a day where I happen to be up.

um, you know, six over six thousand dollars and my biggest loss is 100 bucks, right? My first trade was a winner. uh and from there I was able to start scaling up more and more and more So I do trade these stocks on a fairly regular basis. Um, you know. but I try to be careful about how I manage my risk on them because I know that what comes up, what goes up can come back down.

And so one of the things that I talked about yesterday is that, um, holding a loser uh, can be much more damaging than just letting go, right? Sometimes the right thing to do is just to let it go. And so I am ruthless about cutting my losses I don't hold in hope I just cut the losses I let them go and I'm happy to get back in if there's another opportunity and so on. Something like HKD I think I had a trade on it when it was around like I don't know 160 bucks or something like I don't remember what it was, it was. it was cheap and you know I mean I got a couple trades on it on this move up and then it started going higher and higher and I got to a point where it was too expensive and I couldn't really afford to take big enough positions and I said you know what, That's fine I'm just gonna wait for the next one and look for sympathy momentum, right? Because once you have one big stock like this often you have several other that start moving in.

the sympathy momentum. they start to follow the leader, so you know it's a very cyclical market and right now we're back on a you know kind of China stock. Um, swing where we're seeing momentum in these Chinese IPOs and Chinese small caps. I'm gonna ride the wave, but as always, I'm going to do it cautiously because trading is of course risky.

My results are not typical, and you should of course make sure you take it slow. So I just want to give you this quick episode on um, you know the the mysterious Chinese IPOs I think Bloomberg um is focusing on this one underwriter. you know, a little bit more, but you know there's several other Underwriters that are um that are have stocks like Lfin last year that made equally outrageous moves so they just happen to have a few right now. And I think it's just because Chinese IPOs right now are popular and you know that's the luck of the draw.

They ipo'd those companies at like the perfect time. so let me know your thoughts. I As always Below in the comments I appreciate it and if you want to check out a couple more episodes on the channel, I'll put some recommendations here and here and I'll thank you again for hitting a thumbs up if you found this episode interesting. Every thumbs up is a dollar donated to charity so you're paying it forward through me.

So thank you for doing it. And I'll see you guys back here for the morning show first thing tomorrow morning. All right, see you in the morning.