Should Traders Follow Nancy to Palo Alto?
The former Speaker of the House of Representatives 'nailed' the entry point on a recent purchase. Let's see what trades make sense now.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Lately, I've received several questions about Palo Alto Networks PANW . The Santa Clara-based cybersecurity company has drawn attention due to some options trades by former Speaker of the House of Representatives, Nancy Pelosi.
Understand that nothing that I write here is political. If that's what you want, there are cable channels that discuss politics 24/7. My only interest is to see if Ms. Pelosi's trade idea makes sense.
A recent filing indicated that Ms. Pelosi purchased 70 Palo Alto call options with a strike price of $200, expiring on January 17, 2025. The purchase was made on February 21, a day that saw Palo Alto lose about 27% of its value. Palo Alto had just reported decent earnings and in-line revenues, but lowered its revenue guidance for the full year.
Note that on the day of Pelosi's purchase, Palo Alto's decline was halted by its 200-day moving average (red, point A). The stock then roared higher on news of Pelosi's involvement. That rally was halted, at least temporarily, by the stock's 50-day moving average (blue, point B).
Chart via Tradingview
Take special note of the bullish trendline that started in early 2023 (black dotted line). Despite Palo Alto's steep drop, that trend line was never broken.
The trend line, along with the stock's 200-day moving average, gives the stock a double shot of support in the $265 area. If the stock should fall below those key indicators, traders should take the loss and exit Palo Alto.
On the other hand, there is a large gap remaining from the stock's February 21 decline. That gap has only been halfway filled. If the gap should fill completely -- which is possible if the stock can climb above its 50-day moving average -- we could see Palo Alto cruise to the $360-$365 area, a gain of about 18%.
Viewed objectively, buying a stock as it simultaneously tests its 200-day moving average and its bullish trendline makes perfect sense from a technical perspective. If those supports should break, the trader can exit with a minimal loss. Pelosi nailed the entry.
Buying the stock $45 above that perfect entry point makes a lot less sense. That's where Palo Alto stands at the moment, so I'll decline to enter the stock for now.
Bottom Line
While politics is mostly red vs. blue, try to be objective and keep your mind on the green. Politics can be highly emotional, but investing must be unemotional if we are to succeed.
At the time of publication, Ponsi had no positions in any securities mentioned.
