Momentum investors operate under the assumption that a stock heading higher (or lower) will keep going in that direction. Until there’s a sign of a trend change, that’s a reasonable trading strategy. One item that can help momentum plays trend higher is their inclusion in a stock market index.
That’s because the addition to an index means that the index has to buy shares. And since index investing is popular, millions automatically add to an index position with retirement plans such as a company 401(k).
The biggest index that can move a stock is the S&P 500. Made up of the top 500 companies in America, it’s also the index that every investor uses for comparison.
Recently, big-data AI play Palantir Technologies (PLTR) has earned a spot in the S&P 500. They’ll be added soon, and investors have already bid up shares ahead of its inclusion.
That uptrend is likely to continue. Palantir has been on a growth spurt, with earnings up 377% over the last year.
Action to take: Momentum investors may want to buy shares here, as the stock likely has further upside over the months ahead.
For traders, the January 2025 $40 calls, last trading for about $2.45, could see high double-digit returns on a further rally through the end of the year and into January.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.