Why I'm Sticking With Palantir as Deeper Pullback Looms
After an incredible run of gains, Palantir Technologies slipped beneath a recent low.
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After gaining an incredible 213% in the past six months, Palantir Technologies PLTR finally had a bad day. The stock dropped by 5.08% on Monday, a session that saw all the major U.S. indexes tumble.
Despite Monday’s drubbing, Palantir has doubled since I recommended the stock on September 17 (green arrow). This stock has gained 336% year to date.
Monday’s price action may temporarily disrupt Palantir’s bullish trend. The stock opened the week at a new all-time high, only to fall below Friday’s low before the closing bell.
This sequence of events generated a pattern similar to a bearish engulfing candlestick formation (shaded yellow). The pattern hints at the possibility of a further selloff in Palantir.
Why does this pattern matter right now? Imagine that you bought the stock near Monday’s opening price of $80.58, and now you’re down $8. Or, if you purchased Palantir near Friday’s high of $76.82, you’ve lost about $4.
When trading momentum stocks, traders shift their tactical mode. Instead of buying low and selling high, they attempt to buy high and sell higher. This philosophy has been working well in recent weeks.
However, quick losses aren’t conducive to the hit-and-run momentum trading style. Losses could have a chilling effect, keeping potential buyers at bay.
Also on Monday, Palantir fell on heavy volume (red arrow), an indication of potential institutional selling. Palantir’s volume of 168 million was its highest since the post-earnings session of November 5.
On the bright side, Palantir remains well above its 50-day (blue) and 200-day (red) moving averages, both of which are climbing.
For now, I’m considering this price action a bump in the road for Palantir.
A deeper pullback may occur, but I plan to stay the course. I may even add to my Palantir position, provided the pullback is orderly.
Speaking of adding, I’ve just entered a new long position in SoundHound AI SOUN. Like Palantir, SoundHound is a momentum stock, but one that is still flying slightly below the radar.
SoundHound is a momentum play, gaining 93% over the past month. This isn’t a mega-cap dreadnought, but rather a compact speedboat of a stock. Despite recent gains, Soundhound’s market capitalization stands at just $5.5 billion.
I’m starting with a small position in SoundHound, and will add to it if the stock pulls back. This way, if SoundHound doesn’t pull back, at least I’ll be in the game.
If this sounds aggressive compared to my usual style, you’re correct. I’m leaning just a bit more into risk due to current market conditions.
Momentum markets never last, but they can be both fun and profitable for short bursts of time. Based on seasonality and price action, we’re in that momentum mode right now.
At the time of publication, Ponsi was long PLTR and SOUN.
