Palo Alto Networks (PANW) - Feb 26th 2024
Nancy Pelosi's latest bet gifts traders with a massive trade opportunity
Bigger picture context
Palo Alto had earnings recently, and despite showing good numbers, the CEO said they expected cuts in their upcoming anual forecast as it seems the industry is dialling back on cybersecurity spending. This obviously scared investors, and the stock plunged a whopping -20%.
Just a few days after the drop, it was reported that Nancy Pelosi had opened a $1.25M position in PANW calls. Pelosi, an American politician and active member in the U.S. congress is well known for her insider trading, which has caused a lot of controversy in the past. She famously bought NVDA at the lows and before the $500 breakout. This is her latest bet.
Weekly chart
We can appreciate that big drop after a very consistent uptrend. Regardless, one could certainly argue this is a somewhat healthy pullback. Notice how price found support in the $260 area, matching previous multi-month resistance, now turned support. There's also a confluence with that upward trendline right at the bounce area.
Daily chart
A somewhat bizarre daily chart after that massive gap down. However, notice how price ended the week with a decent hold. We didn't get much of a post-earnings drift. The $260 area held well and price gapped up both Thursday and Friday, ultimately trading into gap fill territory and closing in the green.
Hourly chart
Again, a bit of an odd chart to show because of the gap. Marked some levels to the upside as we're about to go over a gap and go trade to the upside.
Pre-market action
Price started the week gapping up and after climbing further during the pre-market session, it is set to open right above our $228.25 level. At this point, the news of Pelosi's call option purchase is out, so this stock is on watch, as she's known for her great picks.
The trade
We all know what's coming. Here's our CPT:
Cue(s)
Stock held well after a harsh earnings dump, with little to no drift
Stock is in gap fill area
Gapping up above a level
Catalyst: Pelosi's call purchase
Intraday cue: 3-bar play at a level after a 30m consolidation
Plan
I feel like a broken record, but, as per usual, when a stock is gapping above a level, we want to see it retest the level and trade back above the opening print. Our stop is then set below the level and we're looking for at least two levels above as target. This is our standard.
Trigger
Any buy setup triggering on the smaller timeframes near the level, or the opening print getting reclaimed.
2m chart (entry details)
Notice how we get a potential buy setup on that first 2 minute bar but it doesn't trigger. Yet two bars later, we get an even better buy setup, again right off our level but this time after a failure pattern. The trigger is right around the opening print, which adds further confluence to our entry. Notice how the trade works perfectlyall the way to our first level. There's not a single pullback, and this is a 2 minute chart. Let's zoom out now.
5m chart
Price trended all day. And honestly, you could catch a nice chunk just by trailing your stop on every pivot.
T2.1 is after a failure to go higher at a level, which would justify a trim according to our rules. However, you could surely hold some as you have T2.2 at the $297.08 level that can still hold. And it sure does.
T3 is set as soon as price breaks out of the $299.13, to protect yourself against a potential rejection at the $300 psych. level.
T4 and T5 are pivots, and T6 is a bit of a nasty failure bar that triggers our last stop.
Closing notes
Some may remember a few years ago when ARK’s Cathie Wood became a very popular stock picker. Every stock she touched had all eyes on it immediately. It seems like now Pelosi's trades are the hook.
Honestly, I believe this will not end well. Only time will tell. In the meantime, this is free edge for us traders. Take advantage of it as much as you can while it lasts.
I am posting one trade writeup every day throughout 2024. I focus on large caps using levels and price action. The subscription is absolutely free and will always be. I will strive to provide value by offering clues and ideas for you to enhance your edge. Let’s grow together!