This ETF has 30% upside as the IPO market heats up, according to the charts

Published Wed, Feb 28 202412:51 PM EST

As you might have heard, the IPO market has been heating up. Here's a way to play it. There have been 31 so far in 2024, which is 25% more than 2023 at this time of the year, according to Stockanalysis.com . While no one expects the annual record of 1,035 from 2021 to be challenged, there are potentially a lot more IPOs on the docket over the next 10 months. But what about the stocks that had initial public offerings over the last few years? There are various ETFs that hold recent IPOs, including the Renaissance Capital Greenwich Funds' Renaissance IPO ETF (IPO) . The ETF adds new issues and cycles out old ones three years after their IPO, according to Renaissance. So, the holdings driving the ETF's performance have a high probability to be different from quarter-to-quarter and especially year-to-year. Currently, the ETF holds 59 stocks, with financials (30%) and technology (29%) having the biggest presence by a good margin. Breaking Out We're writing about it here because its chart is sporting an attractive technical pattern. Over the last few weeks, the ETF has been testing a major resistance level near $38. If IPO can remain above this breakout zone, the upside target would be $52, pictured on the chart. The 200-day moving average is the most popular long-term moving average and one of the best long-term trend indicators. Not surprisingly, the fund's worst run over the last few years happened as it traded under a downward sloping 200-day line through 2022. The 200-day flattened last year and has been gradually sloping higher ever since. The IPO ETF bounced from the line last fall and has been trading above it through the first two months of 2024. Seeing IPO stay above the upward sloping 200-day moving average is the best-case scenario. Relative strength IPO has experienced five distinct trading environments since the COVID lows. Two uptrends (blue), one downtrend (red) and two times the ETF moved sideways. During the uptrend from 2020-early 2021, the ETF's weekly RSI oscillated between overbought territory and the mid-point (near 50). The indicator did the opposite from late 2021 through 2022. And in-between those times, the RSI flatlined. As is clear, the indicator once again has been trading between overbought levels and the mid-point. As long as that persists, IPO's prospects will remain bullish. Two IPO Holdings Investors should be aware the IPO ETF isn't very liquid, meaning that its average daily volume isn't robust. The good news is that many of its components are much more liquid. Below are two names that are sporting constructive multi-year technical patterns worth looking into. One is a financial stock, Ryan Specialty Holdings (RYAN) , which just reported earnings, and the other is a technology name, Squarespace (SQSP) . -Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.