In the past few days, Palantir Technologies Inc. (NASDAQ:PLTR) has experienced a noticeable downtrend, with a 6.7% loss over the past week. However, there are compelling reasons to believe that this slide could soon reverse. One notable technical signal is the formation of a hammer chart pattern in the last trading session, suggesting the possibility of Palantir stock finding a bottom.
The appearance of a hammer pattern is a technical indicator that a potential reversal is near, accompanied by a decrease in selling pressure. Yet, this is not the sole factor supporting a bullish case for PLTR. On the fundamental front, a consensus among Wall Street analysts to raise earnings estimates for the company further bolsters the potential for a trend reversal.
Understanding the Hammer Chart Pattern and Its Trading Technique
The hammer pattern is a widely recognized candlestick charting pattern. It features a small candle body with a minimal difference between the opening and closing prices. Importantly, there is a long lower wick (or vertical line) that demonstrates a substantial difference between the day’s low and the open or close. When the length of the lower wick is at least twice that of the real body, it creates the appearance of a ‘hammer.’
In simpler terms, during a downtrend when bears maintain control, a stock typically opens lower compared to the previous day’s close and closes lower once more. On the day the hammer pattern emerges, in the midst of the ongoing downtrend, the stock achieves a new low. However, it subsequently finds support at the day’s low, sparking some buying interest that drives the stock to close the session near or slightly above its opening price.
When the hammer pattern occurs at the bottom of a downtrend, it indicates that bears may be relinquishing control over the stock’s price. The successful resistance to further price declines by the bulls suggests the potential for a trend reversal.
Hammer candles can appear on various timeframes, including one-minute, daily, and weekly charts, and are utilized by both short-term and long-term investors. Nevertheless, it’s important to remember that, like any technical indicator, the hammer pattern should be used in conjunction with other bullish indicators.
Factors Supporting a Likely Trend Reversal for Palantir Stock
PLTR’s recent uptick in earnings estimate revisions is a compelling fundamental factor that suggests a potential trend reversal. Historical data has shown that trends in earnings estimate revisions are closely linked to short-term stock price movements.
Over the past 30 days, the consensus EPS estimate for the current year has increased by 6.1%. This indicates a strong consensus among sell-side analysts covering Palantir that the company is poised to report better earnings than what was previously predicted.
In addition to this, Palantir stock currently holds a Zacks Rank #2 (Buy), placing it in the top 20% of over 4,000 stocks ranked based on trends in earnings estimate revisions and EPS surprises. It’s worth noting that stocks with a Zacks Rank of #1 or #2 tend to outperform the market.
Furthermore, the Zacks Rank has proven to be a valuable timing indicator, helping investors identify when a company’s prospects are on the upswing. For Palantir Technologies Inc., a Zacks Rank of 2 underscores the strong fundamental case for a potential turnaround.
Investors should exercise caution and conduct thorough research before making investment decisions. The emergence of the hammer pattern and the bolstering of PLTR’s fundamentals are promising signs, but market dynamics can change rapidly. Diversifying your portfolio, staying informed about market trends, and seeking expert advice can help mitigate risks and enhance your investment strategy.
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