To The Moon

Palantir Is +160% YTD. What Its Chart Says Ahead of Earnings

$Palantir Technologies Inc.(PLTR)$   will report Q3 results next week as the security-software firm is enjoying roughly 160% year-to-date gains that have pushed its stock to all-time highs. Let's see what its chart and fundamentals say.

Palantir's Fundamental Analysis

PLTR plans to release earnings after the closing bell on Monday, with the Street currently looking for $0.17 in adjusted earnings per share on about $1.1 billion of revenue. This would represent a 70% year-over-year gain in adjusted EPS, as well as more than 50% in y/y sales growth.

If those numbers prove true, then the sales growth would represent the steepest year-over-year revenue gains that Palantir has ever put to the tape for any quarter. They would also mark the eighth consecutive quarter of accelerating year-over-year sales growth vs. the quarter prior.

In fact, 20 of the 21 sell-side analysts that I can find that cover Palantir have revised their earnings estimates upward since quarter began. (One estimate remains unchanged.)

Palantir's Technical Analysis

Next, let's check out PLTR's chart going back some eight months and running through Monday afternoon:

It looked recently like Palantir was forming a double-top pattern of bearish reversal after the stock found support at a 38.2% Fibonacci retracement of its April-through-August rally (the dark-gray line and shaded area in the chart above).

But as the shares managed to base and consolidate near that second top, this threat might have passed.

However, by stretching out the second top over several weeks, PLTR has instead formed an ascending-triangle pattern of bullish continuation with a $188 indicated pivot. The stock has traded above that at record levels recently ($196.67 as of late Tuesday morning) as PLTR tries to hold the pivot ahead of earnings.

Meanwhile, the swing crowd appeared over the past few weeks to play both sides of Palantir's 21-day Exponential Moving Average (or "EMA," marked with a green line). However, portfolio managers appear to have defended PLTR when the stock tested its 50-day Simple Moving Average (or "SMA," marked with a blue line at $172 above).

At the same time, Palantir's Relative Strength Index (the gray line at the chart's top) has rebounded out of neutral territory and is getting more muscular without yet reaching a technically overbought state.

The stock's daily Moving Average Convergence Divergence indication (or "MACD," marked with black and gold lines and blue bars at the chart's bottom) is also notably improving.

For openers, the histogram of the 9-day EMA (the blue bars) has crossed back into positive territory. In addition, the 12-day EMA (the black line) has crossed above the 26-day EMA (the gold line), with both in positive territory. These are all short-to medium-term bullish signals.

An Options Option

Options investors projecting a moderate upside move and seeking to profit using leverage might employ what's known as a "bull-call spread" in this scenario.

That's where you buy one call and simultaneously sell another with the same expiration date, but a higher strike price. Here's an example using recent market prices:

-- Long one PLTR $192.50 call with a Nov. 7 expiration date (i.e. after next week's earnings) at $10.30.

-- Short one PLTR Nov. 7 $207.50 call at $5.

Net Debit: $5.30

This trader is risking $5.30 to try to receive up to $9.70 for a maximum profit at expiration of 183%. Meanwhile, the maximum potential loss at expiration is the $5.30 net debit.

An options trader willing to end up owning Palantir might also choose to sell a put in addition to the above strategy, which could provide the person with PLTR shares at a lower cost basis. Example:

-- Sell (write) one PLTR Nov. 7 $177.50 put for $5.50.

New net credit: $0.20

The trader has essentially paid for the bull-call spread above by risking the possibility of having to buy 100 shares of PLTR at $177.50 at expiration even if the shares are trading lower than that price.

This may serve to lower the net basis for the shares by offsetting the cost of the long call, but also adds the risk of significant losses, as the stock could theoretically fall to zero.

Disclaimer: The information provided is NOT financial advice. I am not a financial adviser, accountant or the like. This information is purely from my own due diligence and an expression of my thoughts, my opinions based on my personal experiences, and the way I transact.

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