Palantir, Momentum Stocks Face May Challenges

BTIG's Chief Market Technician, Jonathan Krinsky, has issued a warning about the potential challenges facing momentum stocks, including Palantir Technologies (PLTR.US), as they enter the May trading period. Krinsky noted that these stocks, which have seen significant gains in recent months, may struggle to maintain their momentum.

Krinsky highlighted Palantir as a prime example, stating that the stock appears to be forming a classic "double top" pattern following its substantial rise in the previous month. This pattern is often seen as a bearish indicator, suggesting that the stock may be poised for a correction.

He further explained that the correlation between retail-favorite stocks and high-beta momentum stocks has reached over 99% in the past 30 days. This high correlation indicates that these two categories of stocks have experienced their strongest nine-day winning streak in at least three years. However, Krinsky cautioned that not all stocks are as overbought as Palantir, but the high-beta momentum sector is facing significant resistance levels.

Historical data shows that when momentum strategies perform well in April, the May trading period has seen declines in six out of the past nine years. Given the strong absolute and relative returns that momentum stocks have achieved in the previous month, Krinsky believes that this sector may face adjustment pressures as the May trading period unfolds.

Investors should be prepared for potential volatility and consider adjusting their portfolios accordingly. The warning from BTIG serves as a reminder that even the most popular and high-performing stocks can face challenges, and it is crucial to stay vigilant and adapt to changing market conditions.