Is Palantir’s ‘Green Hammer’ an Important Sign for Investors?

My colleague couldn't wait to tell me the good news. His text arrived as the closing bell began to ring.

"Look at Palantir. What do you see?"

I looked at Palantir's PLTR daily chart, just as the market was closing. 

"Green hammer," I replied. I looked more closely. "Green hammer on heavy volume."

He was excited because that green hammer is an indication that Palantir bulls had just repelled an incursion by the bears. Bears had managed to push the stock down to $95 at Thursday's open, but were stampeded by the bulls as the stock rebounded to close above $106. 

The bullish candle is circled below, while the green arrow points to a surge in volume:

I love a good hammer pattern, as well as its bearish counterpart, the shooting star. The hammer tells us that the bears took their best shot, and then were overwhelmed by the bulls. The fact that the hammer candle is green means the stock closed near its high of the day — another bullish sign. 

The value of a candlestick pattern is it allows a trader to understand the experiences of both buyers and sellers. We know some traders must have sold Palatir at $95, because every transaction is both a buy and a sell. Imagine selling or shorting Palantir at $95 and watching it rip to $106, and you’ll know how they felt.

The hammer on Palantir’s daily chart is bullish, but let’s not celebrate just yet. First, let’s take a look inside that bullish candle, to see how events transpired.

We used Palantir’s 15-minute chart to zoom in on Thursday's trading activity, and here’s what we found: The reason why volume was so high was due to extraordinarily heavy selling at the open (shaded yellow). As the stock fought its way back during Thursday’s session, volume was considerably lighter. 

To understand just how heavy the selling was at Thursday’s open, compare it to the volume on the six previous opens (black arrows). Sellers were extraordinarily aggressive at Thursday's open, both in comparison to previous sessions and to the buying that transpired during the stock's comeback rally. 

Maybe Palantir’s comeback on Thursday wasn’t as bullish as it appears on the surface. I’m still long Palantir, but I’m a bit less bullish than I was previously. 

Palantir traders should keep an eye out for additional signs of institutional selling. It can take weeks for an institution to unwind a position, so if that's what is happening here, there will be plenty of time to identify it. 

At the time of publication, Ponsi was long PLTR.