Market Finds Footing Amid Software Shakeup as Palantir Leads AI Rebound
Here's what investors should watch now after the market shakeup and more big tech earnings on the way.
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The market has regained its footing following extreme volatility in precious metals and a significant rotation out of AI-related software. There were reverberations across sectors and indexes as investors locked in some gains and repositioned, but at this point, it appears to be a healthy shakeup rather than the start of a major shift in market character.
Some bears were prepared for the start of a significant downtrend but they will have to go back into hibernation for now.
Palantir Leads the AI Rebound
The action continues to improve on Tuesday morning with precious metals rebounding and very strong guidance from Palantir Technologies (PLTR) pushing up the AI-related software sector. Palantir has been the leading AI software play for a while, but it dropped hard following its third-quarter report due to concerns about valuation.
The stock has been in a downtrend and broke its 200-day simple moving average last week, but it is trading up about 11% on Tuesday morning and has regained that technical level. The issue now is whether it can establish a new area of support and trend higher. Keep an eye on the gap created on Tuesday morning and the 200-day simple moving average.
Even with the very robust guidance, Palantir is still an expensive stock. Analysts are predicting 50% EPS growth on 70% revenue growth, but the P/E is 195. That isn’t a problem if the company keeps beating guidance and raising estimates, but there is no room for error.
Big Tech and Economic Data in Focus
On Wednesday evening, Alphabet (GOOGL) will be reporting, which will be particularly important for the AI sector. Google’s Gemini has taken the lead recently, and it will be interesting to see how that impacts profitability and capital spending. Amazon (AMZN) will follow with its report on Thursday.
Federal economic data is being delayed due to the partial government shutdown, but there will be a jobs opening report and ADP payroll news. The market used the excuse of a new Fed Chair to justify some of the recent selling, but that appears to be forgotten for now.
Technical Levels and India Trade News
There are signs that the economy is still strong, and a trade deal with India is contributing to the positive mood. The key issue for traders now is technical. The indexes need to hold above recent lows, form some support, and regain momentum. If there is a retest of recent lows, the chances of a technical failure are high.
I continue to be focused on trade management and am watching closely for earnings dates for my small-caps. Small-caps are the last group to report, and we won’t see much news for another week or two. The recent volatility created some good entry points in thinly traded names, but not everything has bounced back. I’ll be looking for more entry points.
At the time of publication, Rev Shark had no positions in any securities mentioned.
