AI Services company Palantir snapped into what is referred to as a Volatility Rally on Monday as the stock rallied more than 5%. The rally represented the fourth best performance for Nasdaq 100 stocks, with bullish short-term implications.
The bullish implications come from a technical signal formed as Palantir stock broke above its top Bollinger Band Monday.
A stock’s Bollinger Band is a technical analysis tool that uses the standard deviation of a stock’s price to measure its volatility and provide relative boundaries of highs and lows.
Historically, a break above or below a stock’s Bollinger Bands will be followed by an aggressive move is the same direction.
Today's 6% move moved shares above their top Bollinger Band, indicating that a volatility rally is about to ensue on Palantir stock.
For reference, Palantir shares have been trading for a total of 1,136 days since becoming publicly traded in 2020. Since then, Palantir has only seen 25 similar signals of the stock breaking above its top Bollinger Band.
On average, Palantir returns +4% over a 20-day trading period, or one month. That average return considers both “winning” and “losing” trades. The 4% average seems small, but separating those returns by winners and losers begins to show the aggressive nature of these moves and how the stock is flashing a potential breakout above $100.
The table below displays the separate returns for Palantir after top Bollinger Band breaks for both bullish and bearish results.
According to the data, Palantir stock trades higher 48% of the time, basically a coin toss. Those bullish signals average a return of 16.9% over the following 20 trading days which extends to 26.1% after another ten days.
The signals that failed to generate positive returns netted a loss on the stock of 14.4% after 20 days and 16.5% after 30.
Investors would look at these returns and likely decide that they should neither buy or sell Palantir based on these results, and they’re right. The traders would see things more differently though.
Palantir has been trading in a relatively tight range for the last month as the stock has bounced between $80 and $90. The stock is 6% higher in the last month and that’s due to today’s 6%+ move.
Compared to the market, Palantir has been a leader as the Nasdaq 100 currently posts a 6% loss for the same one-month period. That view of Palantir suggests that investors and traders have been buying into the stock on its recent dip.
In addition, Palantir’s 50-day moving average – one of the most widely used trendlines – is in a very bullish trend.
Finally, the stock’s current price is just under $100. That price is one of the most significant trading prices for a stock from a sentiment or psychological perspective.
The top Bollinger Band break is just the catalyst for Palantir shares to surge higher. A move above $100 over the next few days will be the fuel to set Palantir stock into a rush higher as investors will not get that familiar Fear of Missing Out (FOMO) feeling.
For clarity, the market remains in a very tepid spot for all stocks, including Palantir, but the short-term “Dead Cat Bounce” that is swooping the S&P 500 and Nasdaq 100 indices higher will have a magnified effect on shares of Palantir.
Short-term traders can expect the stock to rally towards a target of $110 with increasing resistance to the stock as it moves above that price.
Failure of Palantir stock to move above $100 in the short-term will signal that the current rally is ready to fade and retest $90.
Long-term investors should expect some selling into that strength as shorter-term traders take advantage of some fast profits during what may be nothing more than a relief rally for stock.
Palantir remains in a long-term bullish trend with a price target of $150.
