Palantir Is Moving to Greater Things With S&P 500 Addition
Investors might expect an "inclusion" impact for the big data name.
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Some call it the "inclusion" impact. Others might call it the "addition" phenomenon. Over the decades, traders and investors have labeled what we speak of today in a number of different ways.
The impact or phenomenon that I write of this morning refers to the expected increase of a stock's market price upon the announcement of its addition to a highly-followed major (or even mid-major) index that happens to be tracked by a lot of money. By "tracked," I mean funds of various kinds, often passive in nature that operate with a mandate to mimic said index and therefore must hold shares of that index as a means toward achieving that objective.
In short, this phenomenon is a short-term positive impact in share price that traders can take advantage of in between the announcement of said corporation being added to something like the S&P 500, and likely settles down a little after two weeks later, when all of the funds have rebalanced their portfolios, and have purchased those added stocks and then weighting them appropriately, while selling off deleted stocks.
The News
S&P Dow Jones Indices will next implement their quarterly rebalancing after the closing bell on September 20, 2024. After this past Friday's closing bell, the announcement concerning what stocks might be going where was made. Entering the S&P 500 will be Dell Technologies DELL, long-time Sarge fave Palantir Technologies PLTR and Erie Indemnity ERIE. Being dropped from the S&P 500 will be American Airlines AAL, Etsy ETSY and Bio-Rad Laboratories BIO.
Of those names being deleted from the S&P 500, Etsy will be added to the S&P Small Cap 600 as Haverty Furniture HVT gets the boot from that index. American Airlines will drop down to the S&P Midcap 400, as Tegna TGNA also gets the boot, and Bio-Rad Labs will simply replace Erie Indemnity in the S&P 400 from where Erie is being promoted.
On Friday Alone...
We gave readers plenty of notice. I mentioned in Market Recon that the announcement would be made that evening and that there was pressure on S&P Dow Jones to get this right because some recent additions had embarrassed them.
The first two names I threw at you in that morning piece were Dell Technologies and Palantir Technologies. I added some others, some of whom I mentioned that I thought had very little chance. I did completely miss Erie Indemnity.
I ran the Daily Diary on Friday as Doug Kass was out. I posted earlier in the day that PLTR was testing my pivot point from above as stocks weakened. Later in the afternoon, as stocks entered into a modified state of collapse, I wrote for the "Stocks Under $10" session here at TheStreet Pro that I was adding to Palantir, as well as SoFi Technologies SOFI and Rocket Lab USA RKLB on the then-pronounced weakness. The piece was then also posted to the Daily Diary.
I currently see PLTR trading up 8% ahead of the U.S. open and DELL trading up 5%. ERIE is up 3%.
As Readers Know...
I have been pounding the table for Palantir for quite some time. The "Stocks Under $10" portfolio was long the shares with a mid-single-digits net basis. Once that product was terminated as a stand-alone offering and I was allowed to own the shares of portfolio stocks in my own accounts, PLTR was the first name I bought for myself, with a $16 handle. Those who have joined that trade and followed along know that I currently have a $36 target price.
Nothing has changed in that regard. The shares rebounded sharply off of their 200-day SMA in early August and will now threaten to break out of the ascending price channel to the upside. The daily MACD, which was starting to waver, will improve this morning, and we are still working off of a $30 pivot created by the March through early August cup-with-handle pattern.
Will I raise my target price again soon? I hope so, but I need a technical reason for doing so. All of my prior targets have been met and exceeded as PLTR in terms of percentage gain from initial point of entry is already one of the greatest trades of my many decades long career. I remain confident.
I Also Covered...
...Dell in a late August piece for TheStreet Pro. In that piece, I mentioned that the firm had posted a good quarter and provided solid guidance. However, the quality of the balance sheet was something I was not crazy about. In contrast, Palantir operates with of the strongest, most fortress-like balanced sheets that this fundamental analyst has ever seen.
Readers will see that what had been a bearish head-and-shoulders pattern for DELL had developed into a small cup with handle pattern in August, which is bullish. Traders will see that pop this morning. Unlike PLTR which is trading above all of its key moving averages this morning, DELL will still most likely hit some resistance at its 50-day SMA (about $109).
While I do not think an investment or long-side trade in DELL is wrong, for reasons both technical and fundamental, I have more confidence in PLTR's ability to hold the lion's share of these gains going forward beyond the positive impact of added to the S&P 500. This addition could also help PLTR get through what might be a difficult market for the technology sector broadly and for big data focused generative AI stories more specifically.
At the time of publication, Guilfoyle was long PLTR, SOFI and RKLB equity.
