Palantir's Valuation Debate Sparks Intrigue For Direxion's PLTR-Focused ETFs

As one of the top technology performers in the market this year, no one can deny the extraordinary performance of big-data analytics specialist Palantir Technologies Inc PLTR. Since the beginning of this year, PLTR stock gained almost 350%. At the same time, the equity sector's gravitational pull always risks the possibility of an incoming correction.

Admittedly, the bulls enjoy a wealth of arguments favoring a continued push into Palantir stock. For one thing, the underlying industry of artificial intelligence has taken the world by storm. A study released by Cognizant Impact early this year noted that generative AI should boost the U.S. economy by $1 trillion within the next ten years.

Specific to Palantir, the analytics specialist continues to post milestone achievements and ink strategically significant partnerships. Recently, PLTR stock benefited from a solid pop when the underlying enterprise entered an agreement with Red Cat Holdings, Inc. RCAT. This collaboration will enhance autonomous unmanned warfare drones by utilizing Palantir's AI software.

On the technical front, PLTR stock trades well above critical market gauges, including the 20-day, 50-day and 200-day moving averages. Generally, traders prefer not to fight the tape unless there is a compelling reason to do so.

On the other hand, some cracks may be forming in the stock's armor. Other technical indicators suggest that shares are overbought. Furthermore, Wall Street analysts lean bearishly with a 2.2 overall rating, suggesting a sentiment of Sell. Finally, key insiders have recently offloaded PLTR, which, while not definitive, may indicate higher odds of volatility.

The Direxion ETFs: While a lack of directional clarity can frustrate buy-and-hold investors, the underlying volatility of PLTR stock could offer opportunities for momentum traders. Financial services provider Direxion recently launched Palantir-focused exchange-traded funds that seek to capitalize on this great sentiment debate.

For the bulls, traders may consider the Direxion Daily PLTR Bull 2X Shares PLTU. This leveraged ETF seeks daily investment results of 200% of the performance of PLTR stock. On the other end, pessimists may look to the Direxion Daily PLTR Bear 1X Shares PLTD, which seeks the daily results of 100% of the inverse performance of the namesake security.

Fundamentally, these Direxion ETFs offer convenience. Rather than engage the options market – which features additional complexities – investors seeking leverage or a short position can simply buy units of PLTU or PLTD, respectively, much like a traditional security.

However, it's important to note that the Direxion funds – whether the 2X bull or the 1X bear – should only be held for a period lasting no longer than one day. Otherwise, the daily compounding effect of leverage over time may lead to value decay.

The PLTU ETF: Launched on Dec. 11, 2024, not much pricing data exists on the PLTU ETF. Nevertheless, despite recent negative price action, the overall trend suggests a baseline of support.

• One day after its market debut, PLTU entered what appears to be a horizontal trend channel, with the $29 level acting as resistance and $26 as support.
• Moving forward, it will be essential for the bulls to maintain support at $26. Otherwise, a testing of the $25 level could materialize.

The PLTD ETF: Also launched on Dec. 11, the PLTD ETF lacks pricing data. However, its market trend right now subtly suggests brewing skepticism.

• After an initial lively period, the Palantir bear fund entered into a horizontal consolidation pattern, with upside resistance at $24.50 and downside support at $23.30.
• Currently, PLTD appears to be struggling against the psychologically significant $24 level. Rising above this benchmark will be critical in maintaining structural integrity.

Featured photo by Jensen Art Co on Pixabay.