Riding the Train to Palo Alto

Should politicians be allowed to invest in the markets? It’s a controversial topic, but for now and the foreseeable future, it’s perfectly legal for politicians to invest in stock and options markets.

Two months ago, it was revealed that Nancy Pelosi, the former Speaker of the House, placed a significant trade in Palo Alto Networks PANW. Pelosi purchased January 2025 calls with a strike price of $200.

At the time, I was hesitant to join Ms. Pelosi in this trade, for reasons discussed here.

Pelosi has a successful investment track record, gaining 65% in 2023. Last year, she trounced the S&P 500’s 24% return. As a retired California politician, it's possible that her status and proximity to Silicon Valley tech companies provides her with an edge.

Please understand that none of this is political. This isn’t about red or blue. As investors, we have to put politics aside and focus on the green.

Speaking of green, Palo Alto’s chart just flashed a buy signal. On Wednesday, the Santa Clara-based cybersecurity provider broke out of a consolidation pattern (black dotted lines) to trade at its highest level in two months.

The stock is comfortably above its 50-day (blue) and 200-day (red) moving averages. Palo Alto is scheduled to report earnings on Monday, May 20, so this breakout can be considered a vote of confidence ahead of that event.

Palo Alto is dealing with an area of minor resistance from three months ago (circled). If the stock can close above the February 27 high of $327 (arrow), it could quickly run to $360 by filling a gap from its prior earnings report (point A).

I’m reluctant to take a full-sized position in Palo Alto this close to the company’s earnings report. The sharp drop after the February report stands as a warning.

Instead, I’ll enter one-half of a normal-sized position size here, and leave open the possibility of buying more shares later. We’ll re-evaluate Palo Alto after May 20.

While Palo Alto's earnings report is key, other factors are working in our favor. On Monday, the S&P 500, the Nasdaq 100, and the Nasdaq Composite Index all closed at all-time highs. Meanwhile, Palo Alto has agreed to acquire IBM's IBM QRadar Software as the two companies form a security partnership.

Momentum is on Palo Alto’s side, both on its individual chart and in the major indexes.

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At the time of publication, Ponsi was long PANW.