Palantir (NYSE:PLTR) was once the belle of the momentum ball. In just four months, the freshly minted public company rose 300+%. Unfortunately, February’s fallout in growth stocks sent its fanboys scurrying, and PLTR stock has been trying to find its footing ever since. In today’s article, we’re taking an updated look at its bottoming attempts and laying out why I think a turnaround could be in the cards.
The bullish case for PLTR hangs on two facts.
First, the tech sector is making a comeback, and traders are warming once more to the growth factor. Second, the trajectory of Palantir’s price trend has shifted. Selling pressure is easing, and sideways is the new down. Let’s take a closer look at both.
New Highs for the Nasdaq
To measure investor appetite for growth stocks, look no further than the Nasdaq. We’ll use the Invesco QQQ Trust (NASDAQ:QQQ), which is the Street’s go-to ETF for tracking the Nasdaq-100. The 50-day moving average is as good an indicator as any to identify when a trend turns from bull to bear and vice versa.
When investor sentiment soured for growth stocks in February, QQQ fell below the 50-day moving average sending a warning sign to chart watchers across the land. We spent the next six weeks floundering in no-man’s land while bulls looked elsewhere for love.
As is always the case with a sector like tech, however, buyers eventually returned. In this case, their appearance came on April 1. QQQ dashed back above the 50-day moving average to signal its correction was over, and a new advance was beginning. Since then, it’s been a straight shot higher that just eclipsed the previous peak.
With prices now basking at record highs, the conclusion is clear. Growth stocks like Palantir have a much more favorable backdrop.
PLTR Stock Price
If I were writing this piece a month ago, I would have immediately dismissed any bullish trade ideas on Palantir whatsoever. The technicals were untidy, and its chart stuck in a downtrend. But with the tech tide turning higher, things have become quite a bit more constructive – enough so that I can make a case for a neutral or bullish leaning options play.
The downtrend’s momentum has slowed for starters, and we’ve now seen buyers defend support near $21 multiple times. The 20-day moving average is flattening to confirm selling pressure is easing. Bulls’ enthusiasm should be tempered, however, by the fact that we haven’t broken resistance. Equal pivot lows are one thing, but it takes higher pivot highs or resistance failing to really bring buyers to the yard.
I’d peg $25 as the line in the sand that needs to be breached before we have sufficient confirmation for bullish trades. Anything directional entered before then is anticipatory. You’ll get a better price, sure, but the risk of loss is arguably higher.
Two Trade Considerations
Bottom fishers can map out two trades here. First is a neutral cash flow trade designed to capitalize on continued sideways movement. The second is a bullish play that you can deploy if PLTR stock pushes past $25 resistance.
Neutral Trade: Sell the May $20 put for 55 cents.
This wager pays out if prices sit north of $20 at expiration. Your gain is capped at $55 per contract. To minimize the damage if PLTR falls, exit on a break below $20.
Bull Trade: Buy the June $25/$30 bull call.
If you take the anticipatory entry and buy now, it will cost you $1.20. The potential upside is $3.80.
If you wait for PLTR to rise above $25 first, then the cost will be around $1.50 with a potential upside of $3.50.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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