Palantir Technologies (NYSE:PLTR) was headed for its sixth straight losing session in a row on Wednesday. The drop brings PLTR stock to the doorstep of a major support zone that must hold if prices are going to maintain any semblance of neutrality.
Weakness has plagued Palantir for over three months now, providing little hope for shareholders looking for a turnaround.
The fallout has come amid a broader cooling among growth stocks. Traders have abandoned this factor along with tech stocks in favor of cyclical and value stocks.
This week’s market movement is a perfect example. On Tuesday, the Nasdaq got torched. At its intraday low, the Invesco QQQ Trust (NASDAQ:QQQ) was down 3%. By comparison, the Dow Jones Industrial Average, basic materials, financials, and energy all closed up on the day.
The stark divergence in performance was continuing on Wednesday.
This isn’t exactly the best backdrop for deploying bullish trades on PLTR stock. In fact, it’s far more supportive of building bearish plays to bank on what could be a nasty break of the $21 support zone. Let’s take a closer look at the price chart to map out its next move.
PLTR Stock Chart
Since the Palantir IPO was just last September, there’s no need to spend time on the weekly time frame. The daily chart shows more detail and encompasses all the post-IPO price action, anyway. Two epic breakouts boosted PLTR from $11 to $30 and then $30 to $45. The explosive follow-through made the stock mega-popular among momentum traders. Its cheaper price tag certainly didn’t hurt either.
Unfortunately, ever since its late January peak, the stock has seen nothing but bearish price action. February’s earnings announcement only added to the pressure, and we’ve been trending below the 50-day moving average ever since. And it’s not like we haven’t tried to push back above it. We’ve seen multiple rebound attempts, but each was quickly rejected. Given the dominance of the 50-day (which now lies near $23.50), it’s the obvious line in the sand that needs to be broken before anyone should entertain a bullish trade.
Meanwhile, bears are anchoring on the aforementioned floor at $21. What’s particularly worrisome for Palantir fans is the lack of other support areas if we take out $21. The breakout last year that swiftly sailed prices from $11 to $30 didn’t leave any pivot lows along the way. And that makes it all the easier for sellers to press their bets once the floor fails.
Bet with Bears Using Put Spreads
One wildcard to be on the lookout for is next week’s earnings report (scheduled for Tuesday morning). This will only be the third announcement since Palantir went public. Its previous two showings didn’t exactly help the stock in the short run. And I don’t expect much bullishness after this one either –particularly given the general negative sentiment toward growth and tech right now. Q1 2021 has seen one of the worst responses to earnings beats in years.
In sum, I wouldn’t put much faith in earnings to come and save the struggling stock chart.
If you want to bet with sellers on the looming support break, then consider using put spreads. They provided a lower-risk, and cheap alternative to shorting stock or buying puts outright.
The Trade: Buy the June $21/$17 put vertical for $1.35.
The max loss is $1.35 and will be forfeited if PLTR stock sits above $21 at expiration. The max gain is $2.65 and will be captured if prices fall below $17 by expiration.
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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