It’s been labeled a risky bet in the past. But today big data operative Palantir Technologies (NYSE:PLTR) looks increasingly like a smart money play off and on the price chart. Let’s explore what’s happening in PLTR stock and what calculated exposure that can better protect and serve investors might look like in your portfolio.
If history doesn’t repeat, it certainly enjoys rhyming on Wall Street. This month’s corrective low in the Nasdaq was a full 12% beneath the benchmark’s all-time-high set on Feb. 16. That size decline is no laughing matter. Similarly, but more gut wrenching, the index began 2020’s historic bear market of 33% on Feb. 20.
Yup, the modest difference in starting dates between the two corrections serves notice the market’s ability to rhyme is alive and well. What’s more, if investors’ consider PLTR stock’s slippery lows this month and despite being a privately-held company one-year ago, that ability looks even more tenacious.
As the Nasdaq topped on Feb. 16, PLTR was busy plunging by a much more significant 12.75% through lifetime channel support. And that loss was on top of a decline of roughly 27% from the stock’s all-time-high set in January. Yikes!! Right?
The Trigger
The trigger behind Palantir’s increased selling pressure was two-fold. In a nutshell, mixed earnings sporting solid double-digit sales growth, improving margins and strong progress in the outfit’s private-sector business were rejected in favor of worrying over continued slightly larger losses and an expiring lockup period.
If the story doesn’t sound familiar, it should. From Amazon (NASDAQ:AMZN) to Netflix (NASDAQ:NFLX) or Tesla (NASDAQ:TSLA) and almost without exception, the best growth narratives all share similar eye sores on the way to dominating their respective markets. The thing is, being an innovator and dominating a market isn’t free. And like clockwork, from time-to-time Wall Street will stress over what it takes to create the strongest long-term proposition for a business.
And regarding that lockup thingamajiggy in Palantir shares? The other thing is insiders are free to and should take profits along the way. And as with AMZN, NFLX, TSLA and others which faced similar episodes of investor anxiety, the PLTR story is rhyming nicely there too.
PLTR Stock’s Real Identity Revealed
Not everyone on Wall Street has been worried about the earnings miss or insider selling pressure. In fact, one key player has bought into the Palantir story as shares moved deeper into bear market territory in the report’s aftermath. Attributes such as PLTR’s solid sales capture of 47% or forecasted 5-year growth rate of 30% haven’t been lost on the likes of Ark Invest funds. And in our estimation, it’s worth taking notice of.
In 2020 and out of the ashes of the bear market, the investment manager’s tech-heavy flagship ARK Innovation ETF (NYSEARCA:ARKK) returned a stunning 150% compared to the Nasdaq’s own stiff gains of 43%. The massive relative and absolute outperformance was attributed to concentrated bets in Tesla, Square (NYSE:SQ) and Teladoc (NYSE:TDOC) among others. And now you can count PLTR stock among the fund’s ranks.
Today and since PLTR’s earnings reaction, ARK Invest has been vigorously buying shares for its ARKK fund, as well as its ARK Next Generation Internet ETF (NYSEARCA:ARKW). How active? In the tens of millions active. On Feb. 16, the fund snapped up 1.56 million shares for ARKW. Then on Feb. 18, the firm purchased more than 5.25 million shares of PLTR for ARKK.
Ark Invest wasn’t done either. The combined buying efforts of nearly $200 million have been reinforced with additional accumulation of PLTR shares this month. As it stands, the commitment is approaching nearly $400 million allocated between the two funds.
PLTR Stock Daily Price Chart
Source: Charts by TradingView
So, who are you going to believe? The bears or the bulls in PLTR stock? How about both? Even storied multi-year returns in AMZN, NFLX and TSLA have proven investing can be a profitable two-way street. Well, at select times. And to be fair, this month a hat tip should be extended to Citron Research.
In November, Citron Research, a well-known short-seller, proclaimed PLTR shares a full-blown casino. The firm went on to set a price target of $20 as the stock changed hands in the low $30’s. And with a March low of $20.18 now in hand, that’s what they call “good enough for government work” and a job well done.
Looking forward though, given the newer bullish circumstances discussed above, as well as the evolving evidence on the price chart, PLTR has the appearance of a stock to buy.
At its weakest and just fractionally removed from Citron’s target, Palantir shed 55% from its late January high of $45. In healthier environments, corrections of 30% are common in a growth name like PLTR. But in weaker settings like we’ve witnessed in tech stocks this month, corrective declines can and routinely grow much larger.
Importantly, as the best stocks can also attest, those bearish cycles have a way of vanishing. The cycles then turn into much more meaningful longer-term buying opportunities.
Bullish Indications
Today and technically, PLTR’s price action is also hinting that better days may already be here. To be certain and shown on the illustrated daily view of PLTR, a broken trendline or higher-low pattern are no guarantee of future performance. But they are bullish indications amid the reality of imperfect information.
Bottom-line and keeping what matters most to investors intact and ultimately thriving, a fully-hedged but always adjustable collar strategy such as the May $20/$33 combination makes buying today, a certain winner and irrespective of what tomorrow brings.
On the date of publication, Chris Tyler holds, directly or indirectly, positions in Palantir Technologies (PLTR), Ark Innovations (ARKK) and their derivatives, but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
