In the last few blogs, we have been warning the potential of a breakdown of 5-10% because the DOW was not able to breakout the trend line clearly for the last two weeks while the NASDAQ was in correction mode. The bifurcated markets made us cautious and wondering what’s behind the scene to create such a confusion amid mixed fundamental signals.
The 10-year treasury yield peaked at the end of March and the tech/growth stocks did not rebound based on the lowering yield since then. So the theory of lower yield helping tech/growth stocks is debunked. We believe, what’s really happening is just an over valuation correction in tech/growth stocks, albeit a big one for some growth stocks. The rising yield was just an excuse for the selloff in growth stocks.
It is very reassuring to see that the DOW is leading the market, not the NASDAQ. The DOW reflects the real economy and is less speculative than the NASDAQ. Instead of for the DOW to breakdown to join the NASDAQ on the downside, the NASDAQ will rise up to join the rally with the DOW.
Technically, the NASDAQ made a low last Thursday which appears to be its current weekly cycle’s first half cycle low. The DOW confirmed its weekly cycle’s first half cycle low last week, which means the DOW could run up for another 5-8 weeks to finish the current weekly cycle. The NASDAQ should catch up with the DOW in the next 5-8 weeks.
PLTR is one of our major holdings. It has corrected from 45 to 19.41, a whopping 57% correction in the last three months. PLTR will report earnings on May 11, before the bell. 20.18 is the early March low. If after earnings PLTR can swing back above 20.18, then the decline is over. Typically when a stock sells into the earnings report, if there is no major bombshell negative news, the earnings reaction will be positive because the price is already low enough. From all the official PLTR news release, we haven’t found anything negative. We anticipate PLTR to beat estimates and the decline to be over after the earnings report. If the correction is not over after the earnings, we are prepared to add more below 20.
When you double down on a stock, you need to ask yourself the following questions:
- Is the company going to go bankrupt? Any major accounting/regulatory problems?
- What kind of industry is the company in? Is it in a growing industry?
- What kind of quality of the management does the company have?
We have not found any flaws in the company, except the stock price is a lot lower than three months ago. If you are a true long term investor, a lower price should be a welcome opportunity. That’s how we view the volatility in PLTR. Granted, we have also made money in trading the volatility, but our core holding is intact in PLTR.
Below is the DOW weekly chart. It is as bullish as it can be. We are expecting the market to continue the rally for the next 5-8 weeks. That’s what we call a panic to the upside in disbelief.