Catching a Multi-Bagger on PLTR. Is it Ready to Bounce?
In 2023 thru mid 2024 it was SMCI and NVDA that led the market higher. Since then, investors have turned more from AI hardware to AI software.
MSFT was the darling initially but it was PLTR that took over the mantle as the leading AI software stock. Today lets look at the signs that PLTR gave us that it was about to nearly triple in just a few months time.
We featured multiple stocks that have more than doubled since late last year. Its very valuable to understand the early technical and fundamental signs that a stock is about to take off. Just 1 or 2 of these per year can make all the difference in your investing and trading results.
Early Signs that a Stock is About to Make an Incredible Run
In 2023 and early last year we featured SMCI just before the stock tripled in price within a few months. We did the same with NVDA although it more than doubled instead of tripled within the same timeframe.
In both cases the stocks had already formed a strong uptrend and were in very bullish basing patterns. We featured SMCI right after they pre-announced a huge sales beat. The stock was breaking out of a bullish ascending base pattern after hours. A pattern that often leads to a parabolic move.
The point of this article is to find commonalities among the biggest market winners early in a powerful move higher. What are the early signs? Not that it may break a long-term downtrend months from now and maybe make a big move in a year or two. But what are the signs that its about to take off in the very near future?
This is a question that all traders need to ask and answer. Going for a double or triple within 3 months is not a high percentage trade. Enough singles will give us the same end result with a higher win rate but holding more on the stocks that are showing all the signs of a monster move can also be very rewarding.
Why Did We Feature the Stock Just before it Doubled within Several Weeks?
There are a lot of similarities between the biggest winners in the daily alert service over the past 15 years.
Like many of them, PLTR just reported 30% revenue growth. More is even better. They raised their revenue guidance for their commercial business to at least 50%.
If you looked at the prior 3 years of cash flow, you can see the very rapid free cash flow growth over that time. Another classic sign. They also raised guidance the evening we featured the stock.
No Overhead Resistance Means No Ceiling?
One of the biggest advantages of this trade was the fact it was suddenly breaking into new highs after 3 years of not clearing these levels. As explained in the last blog post, you want to look at a long-term chart when sizing up a trade.
Its normally best to have no overhead resistance. We mentioned TEM a few weeks ago in the closing comments in the daily alert. But you can study those breakouts on TEM over the past few weeks and see how much cleaner the breakout was after it was just below highs.
Before it reached the highs you can see how it broke out, dove lower or gapped lower the day after the breakout and then broke out again. We want stocks that have clean breakouts so we can manage our risk tightly. If you need a 15% stop and it hits that level, its a bad place to be when trading.
Stocks with growth and other key factors with no overhead resistance have cleaner breakouts more often. You cannot let your losses run when using technical trading techniques. It just doesn’t work in our experience.
The biggest winners over the past decade in our service tend to reach a good technical entry point and not look back. In other words, they tend to hold a 4% (or less) stop below the ideal technical entry point after a big catalyst. SMCI did so last year and the year before just before it tripled. TSLA did this in 2020 multiple times. And APP and PLTR did so last quarter.
This is a key early sign that it could make a much larger move.
So this was one of the signs that PLTR was more likely to make a big move when we featured it to customers in early November. It held a tight stop below our entry trigger price and had no overhead resistance.
The Stock has already Built the Confidence Among Investors
Palantir had just crossed a 4 year threshold which is a good milestone to start looking at a stock to trade. Before then, the stock tends to be more choppy, erratic and will surprise you more often. Often in a negative way.
Its a transition to go from a private company to a public company. Sometimes you lose the founders and sometimes the company just does not perform as well as we would like after going public. After 4 to 5 years a stock can become more proven and desired by investors when the stock performs well and especially if it can make it to new highs.
So this was another good sign for PLTR and APP and why we featured them right after great earnings news with an improved outlook.
PLTR had Strong Growth and was Profitable
Another good sign to look for. Usually, 10% growth or “maybe they will turn things around soon” is usually not going to cut it for a monster move. Maybe 10% to 25% but the really big winners that play out quickly usually have the rapid cash flow growth, strong sales growth and often recent accelerating growth.
Stocks that are not profitable will more often drop suddenly days or weeks later. Solid and quickly improving fundamental factors help to support the stock and separate them from the typical low quality pump and dumps we want to avoid.
It also helps that it was the leading stock in the markets #1 theme. AI.
A Strong Start is Another Clue
When they get off to a strong start by quickly moving 25% higher or more within a week or so out of a consolidation with news, this is an early sign that it could be a multi-bagger. Not a great win rate for that, but it increases the odds more than you think.
A slow, reluctant start to the trade is a sign that it may be a single or double but less likely to be a homerun trade. At least in the near-term. Again, we are looking for the double or triple within several weeks or few months. This is always much better than waiting 5 years for it. Or, holding it for years only to lose money on it going into a recession.
If you are a homerun trader, the quicker the better so we can get into the next ideal trade in a bull market. This is the whole goal of trading versus investing along with tighter risk management.
We would use ideal technical entry points and a very tight stop on these opportunities. Its like fishing for an 800 lbs. tuna. You have to find the right spots and keep casting until you hook a big one. You don’t know if its a big one until after it starts to move after taking the bait and setting the hook.
Charts courtesy of StockCharts.com
Price is Everything
If you look at the biggest moves in market history, you see that the 10 bagger, 30 bagger and 100 bagger stocks do not start at $5 a share.
Some people are fooled perhaps because they look at a current long-term chart that is split-adjusted. So, no, Tesla did not IPO at $1 a share. It looks like this on a chart currently but that is because the stock has split so many times. The stock finished the first day of its IPO at around $20 a share.
This is actually lower than the average. Most great stocks are $30 to $50 or more before they really take off. Just look at SMCI and NVDA in 2023. ELF and CELH were also trading at a higher price before they started to trend strongly higher for up to a year or more.
Price is everything. The higher the better as long as the valuation is within reason. The best ones often look a little expensive before they take off such as Tesla in 2020, NVDA in 2023 and PLTR late last year.
When to Sell
As discussed in a prior article, a good exit is the test of the 20 EMA area and selling into the next rebound for a swing trade that often lasts several weeks. This worked nicely on PLTR, RDDT and APP last quarter.
Commissions are now free so we can take some profits early in the trade and raise our stop to a little below the technical entry point. The biggest winners tend to hold that level on a re-test and rebound strongly while holding a tight stop just below that level. Usually the biggest ones do not even retest the entry point as they make their enormous move higher.
Another approach to hold these big winners longer while managing risk will be covered in the boot camp coming in March.
Be sure to enter your name and email using the link below to receive a special invitation to take part. We will be spending a lot of time discussing the best ways to get into and manage these monster winners when they show the above and other early signs covered in the boot camp.
Where Will PLTR Go Next?
We featured PLTR as an earnings gamble a week or so before the latest earnings report. The stock hit the 30%+ profit target soon after earnings which was a big beat and raise. It also held the stop listed in the service for those looking for another 20% on the trade.
But the difference this time around was that the stock did not hold a 2% stop below the technical entry point after the earnings report. It pulled back much further which is a sign that the stock is probably not going to make another enormous move for now.
This is more of a sign that the stock may make that more typical 10% to 25% move further before going into a longer consolidation. And that is what we have seen starting over the past few days. Perhaps we will see another push higher but the stock is likely to go through a well deserved consolidation period soon if it has not started already.
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How to Sell Into Strength on a Trade that Lasts a Few Weeks or More
