Palantir Gets Downgrade By Wolfe Research, But Here's Why The Stock Could Bounce

Palantir Technologies Inc (NYSE: PLTR) was popping up more than 2% higher on Wednesday, in tandem with the S&P 500, which was advancing by about 1.4%.

Wolfe Research analyst Alex Zukin downgraded Palantir to Underperform from Peer Perform on Wednesday, noting the company may see decelerating growth.

Zukin cited decreasing revenues and operating margins as well as decreasing free cash flow in his note to clients. The investment firm also saw the “unpredictability” of the software company gaining more government contracts and awards.

Despite the downgrade, Palantir announced a landmark three-year £75 million Enterprise Agreement (E.A.) with the U.K. Ministry of Defense (MOD) on Wednesday to support the MOD's digital transformation.

The deal will enable any part of the U.K. Defense to gain access to Palantir software across multiple classifications.

From a technical analysis standpoint, Palantir looks set to bounce further over the next few days because the stock was working to print a hammer candlestick on the daily chart. A hammer candlestick, when found at the bottom of a trend, can be a reversal signal.

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The Palantir Chart: Palantir reached a new 52-week low of $6.04 on Wednesday, where buyers came in and bought the dip. This caused the stock to bounce up to a support level near $6.50 and print a hammer candlestick.

• Between the market open on Dec. 13 and the low-of-day on Wednesday, Palantir plunged over 20% without bouncing to print at least a lower high. If Palantir spikes higher over the next few days, bearish traders can watch for the stock to eventually print a bearish reversal candlestick, such as a doji or shooting star candlestick, under the $8 level as a sign the next lower high is in and the stock will retrace further.
• Bullish traders want to see Palantir regain the eight-day exponential moving average as support and hold above the level for a period of time. If Palantir can trade above the area and eventually print a higher low, the downtrend would be negated.
• Palantir has resistance above at $7.18 and $8 and support below at $6.44 and at the psychologically important $5 level.

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