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Cathie’s beloved Palantir falls. Garage sale?

February 20th, 2022

Market Update for the Week Ahead

Welcome everyone to The Juice where we break-down market happenings and option flow that could potentially influence market movements. Short-squeezes, gamma-squeezes, and everything in between! Today we’ll look into Cathie’s decision to sell a huge chunk of Palantir (PLTR) shares and what the options market might be telling us for the week ahead. Let’s dive in.


Cathie’s beloved Palantir. What’s happening?

The ARK ETF has sold over 15 million shares of Palantir (PTLR) over the last two days trimming their total position size by nearly 50%. This comes at an odd time because Cathie Wood has been known for her “buy the dip” strategy, of which she was dollar-cost-averaging down ARK’s positions in Palantir since last summer. Back in August 2021 her funds purchased nearly over 10 million shares of PLTR as the share price continued to tumble from the $30’s to the low $20’s. Now that the share price is below $12 she’s exited the majority of her position, here’s what she had to say about the reasoning behind the recent sale of shares.

“While surpassing revenue expectations with 34% year-over-year growth thanks to success in US commercial, Palantir reported a significant deceleration in growth in the larger government division, suggesting perhaps a change in government procurement behavior.”

While this position exit might seem extremely significant, the reality is that PLTR’s weighting in the ARKK fund went from 1.8% to roughly 0.60%, which is actually somewhat minimal.

So is Palantir doomed? Maybe not, the PLTR chart resembles that of many growth stocks, let’s take a look.

It’s obvious the stock has undergone immense selling pressure over the last 12 months. In fact, the share price has been above the 50 EMA (orange line) for only a handful of weeks throughout the last year, which was evident by the steady decline. After losing nearly 60% from peak share price and trading at much more reasonable valuations in terms of price/sales (now 15x which used to be 35-40x), we would keep an eye out for a base to start forming.

What do we mean by this? We would like to see stabilization in the share price over a few trading sessions followed by a decline in trading volume. This might signify the sellers have done their work and the only ones who remain are the HODLers. While the price stabilizes we should see the 50 EMA and the 100 EMA (blue line) also come down a little closer to the current price. When this happens and/or if the share price of PLTR crosses over those lines to the upside it could mean a reversal is on the horizon. Let’s see.


The VIX - Launchpad Ready?

We don’t want to get too technical over here in today’s edition, but let’s peep the VXX chart real quick. VXX tracks short-term VIX futures which is a fancy way of looking at volatility.

Volatility has been on a steady decline ever since the chaos of the pandemic crash. What’s abnormal here is that even with all the recent selling pressure in many growth names, we’ve barely seen the VXX get over the $30 level. It’s almost scary to think that after a 60% decline in most growth stocks that actual volatility is still at the lowest levels in nearly two years. It almost feels like the next volatility-inducing event could be right around the corner and we wouldn’t be surprised to see a spike back up to $30-40 range.

Here is a picture of the heatmap of large VXX options action on Friday. Traders are bullish and looking at longer dated calls...seeking protection. 


Furthering the bearish sentiment, when we look at just the ETF also looks quite bearish from the large option order perspective on Friday.  


Matrix Scan - On Fire Calls

Let’s get into a few of the matrix scans to see what stocks are setting up to make some moves.  Here’s the On Fire Calls from Friday.

ROKU reported a poor earnings result and received the HULK-SMASH with the rest of the market. Trading down 23% for the day call volume picked up in several strikes in and out of the money. Much of the call volume was running at over 200,000% when looking at the 10-day average as thousands of call contracts were hitting the tape. Going back to Cathie Woods ARK ETFs, even she picked up several hundred thousands of shares. Dumps PLTR to buy ROKU? Hmmmm.

VIG’s Roaring Kitty Calls also happened to agree with this sentiment as most of the call volume that day seemed to revolve strictly around DKNG and ROKU.


Matrix Scan - “Tendies” Calls

Speaking of buying the dip and cooking tendies, some other names on the Nasdaq were caught on the “Tendies” Calls scan.

Outside of the SPY we’ve got QQQ and big-tech potentially setting up to make some moves. The main names we're seeing on the list are AAPL, AMD, and NVDA who have been the pillars of the market up until recent times. Big tech has been quite resilient during the market downfall. Both AMD and NVDA have been the leaders in the chip industry and have been benefitting from their own secular tailwinds. Both names are down roughly 30% from the highs at the end of last year and are nearing their short-term support with RSI hitting the oversold side. Are players setting up for the next leg up in the Nasdaq and QQQ?


Wrapping Up

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That’s all for today’s edition of The Juice, stay tuned next week for more unusual options activity and new stuff coming down the pipeline!