To The Moon

$Palantir Technologies Inc.(PLTR)$

Palantir (PLTR) saw a sharp decline, plunging 10% during regular trading and another 5% after hours. While reports of CEO Alex Karp adjusting his share sales plan and potential Pentagon budget cuts were cited as reasons, these were already known early in the trading day. At 7 AM, it was public knowledge that Karp planned to sell over a billion dollars worth of PLTR stock over the coming weeks or months. If this were the main cause of the sell-off, defense stocks like RTX and Lockheed Martin, which also reacted briefly to the budget cut news, wouldn’t have closed in positive territory.

Instead, the timing of PLTR’s drop aligns with broader market movements, particularly high-flying stocks like SMCI and other AI-related names, which started declining simultaneously. This suggests a broader liquidity shift rather than a reaction to company-specific news.

FOMC Assist Fall

The FOMC minutes and Federal Reserve policy may have played a significant role. Comments from Atlanta Fed President Bostic hinted at uncertainty regarding inflation and interest rates, impacting investor sentiment. Notably, the Fed discussed slowing or halting quantitative tightening (QT), which affects Treasury yields and overall liquidity in the market.

QT works by gradually reducing the Fed’s balance sheet, increasing the supply of bonds in the market, which pushes yields higher. If the Fed signals an end to QT, bond yields may decline, broadening investment opportunities. This shift could lead investors to rotate out of high-growth stocks like PLTR and SMCI and into a more diversified market rally, benefiting interest rate-sensitive sectors.

Risk & Overvalue

This liquidity-driven shift explains why stocks that performed exceptionally well recently, such as PLTR and SMCI, were among the hardest hit. Investors might be repositioning for a broader market move rather than just concentrating on high-valuation tech stocks. Tesla, for instance, held up well toward the end of the session, likely benefiting from these dynamics.

While some may see this as a routine market rotation, others might interpret it as an early warning of a broader market correction. Ultimately, the sell-off seems to be a combination of factors, with liquidity and interest rate expectations playing a key role. Let me know your thoughts—do you see this as a healthy rotation or a sign of a bigger shift in the market?

Fundamental

The key thing to understand about a breakaway gap is whether the company beat earnings expectations. In Palantir’s case, they did beat earnings by 6.67%, which is solid. However, while profitability improved, the company did not deliver a double-digit beat. They reported $827 million in revenue, but the real focus should be on their forward guidance. Their next quarter’s revenue estimate is only $863 million, which is not nearly as impressive compared to companies like Nvidia, which has been doubling revenue and raising guidance with confidence.

Given this modest growth projection, the large gap up in PLTR’s stock post-earnings seems excessive. Valuation concerns also come into play, as many would agree that the stock is overvalued if earnings growth remains relatively small. This suggests that the recent price surge is more likely an exhaustion gap rather than a sustainable breakout.

Looking at historical patterns, PLTR’s stock chart today closely resembles its trajectory following its IPO. Back then, the stock surged over 382% within four months, driven by extreme bullish sentiment and short squeezes. However, that rally eventually reversed, leading to a significant decline—first a 35% drop, then another 27%, totaling a 52% loss from the peak. Even those who thought they were buying at a “steal” at $21 saw further declines of 20% before the stock ultimately plummeted 62% from $17 to $6.

Historical Pattern

The key takeaway is that, historically, Palantir’s stock has followed a pattern of sharp rallies followed by major corrections. The current bullish sentiment surrounding their AI and software offerings is nearly identical to what was seen during the last run-up. Many investors today are chasing the stock simply because it’s performing well, but that does not guarantee long-term sustainability.

While Palantir’s revenue has certainly grown since its early days—now at $827 million compared to $446 million back then—it is not growing at the same pace as Nvidia. Given this, the likelihood of a continued breakaway gap is low.

Looking at the present, a retest of PLTR’s breakout levels could easily lead to a 30% decline from current prices, and based on historical price action, that might just be the beginning. If you own PLTR, you must acknowledge that while a drop is not guaranteed, it is highly likely. If you’re comfortable with the possibility of a 30%, 50%, or even 60-70% drawdown, then this may not concern you. However, for short-term traders, this risk is significant—if you have a $1 million position, a 30% drop means losing $300,000.

PLTR Price Action Analysis

The first thing to consider when analyzing Palantir is that this move is likely an exhaustion gap. Too many bears were shorting the stock, while a surge of retail traders—and possibly even institutional investors—were buying in, leading to a massive short squeeze post-earnings. At this stage, the stock is reaching a point where most of the bears have already covered their positions, and the pool of buyers is thinning out. Historically, this is when selling pressure tends to take over, though it may take a few months to fully play out.

To illustrate a possible scenario, let's assume the stock moves slightly higher before experiencing a sharp selloff. At first, profit-taking from traders who shorted the top and panic selling from overleveraged bulls may cause a temporary pullback. Dip buyers will likely step in at a key support level—say around $100—believing they’ve caught the bottom. This could create a brief period of renewed optimism, but if the stock fails to reclaim its highs, that’s when a deeper correction may unfold, potentially bringing the stock down into the $80s.

It’s important to stress that this is purely theoretical—I’m not claiming to predict the future. However, price action tends to follow certain patterns, and recognizing these patterns can help traders make informed decisions. The goal here is to understand how to spot signs of a stock topping out, when to take profits on winning trades, and how to position for a potential short opportunity if the trend reverses.

For those looking to exit their positions or short the stock, the best strategy is patience. Rather than making impulsive moves, wait for confirmation through price action. Key signals include:

• A transition from higher highs and higher lows to lower highs and lower lows.

• High-volume selling with large red candles, indicating big money is exiting.

• A break below previous support levels, potentially followed by a retest before a larger breakdown.

These objective signals remove the need for speculation and guessing. Instead of trying to call the exact top, traders can wait for a shift in momentum and act accordingly. For example, if Palantir experiences a 30% decline from its peak, even capturing part of that move—say 15%—with a controlled 5% risk presents an attractive 3:1 risk-reward opportunity.

The takeaway here is that there’s no need to rush. The higher the stock climbs, the greater the downside potential if momentum shifts. Whether you're looking to short or lock in profits, keeping an eye on price action and remaining flexible with your strategy will be key. If a sharp rejection occurs on high volume, followed by a weak bounce and another wave of selling, that’s a strong indication that the stock is rolling over. Eventually, price action will confirm the next move, and the opportunity will present itself.

Conclusion

Don't underestimate the potential pullback here—if we see a decline from this level, a 30% drop is entirely possible, if not more. Even if the stock finds temporary support and bounces, it could still form another lower high before continuing lower, potentially reaching $58. That would represent a drop of over 50% from the previous all-time high.

I’m not saying this will happen, but if the price continues forming lower highs and lower lows—confirmed by breakdowns below previous support levels—it will be a clear sign that history is repeating itself. Ignoring these warning signs could leave you looking back later, realizing there was excessive bullish sentiment, weak earnings justification, and an overextended valuation that signaled an exhaustion gap ready to be filled.

The key takeaway is that shorting a stock solely because it appears overvalued is a flawed strategy. Stocks can stay overvalued for long periods, especially if future growth justifies their price. Instead, you need to wait for price action to confirm the presence of sellers. Watch for lower high rejections, breakdowns below key support levels, and an overall shift in momentum before considering a bearish position.

While I do believe bearish sentiment will emerge soon and that the stock will likely decline, that doesn’t mean it must happen immediately. I plan to short this stock only when the price action supports it, and at the current valuation, I see far more downside risk than upside reward.

Right now, many people are still pushing a bullish narrative, but sentiment can shift rapidly—nothing changes sentiment faster than price movement. At the moment, the stock is rising, so everyone is optimistic. But once the price starts falling, you’ll be surprised how quickly that optimism turns to fear. That’s why you should always trade based on the chart, not just valuation or sentiment.

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Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.