Why Paypal Holdings Inc Stock Is Making a Strong Comeback

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PYPL - Why Paypal Holdings Inc Stock Is Making a Strong Comeback

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The correction in Paypal Holdings Inc (NASDAQ:PYPL), mild though it was, is over. And zealous buyers are returning to PYPL stock with aggression.

So says yesterday’s mega-breakout candle, which halted PYPL’s slide and returned the popular online payments system stock to uptrending status. Let’s chronicle the turnabout and identify a trading strategy to capitalize on further strength.

For all its fury the double dose of distribution striking in late-November failed to take PYPL shares below the rising 50-day moving average for more than a few minutes, and that’s telling.

Many momentum stocks fell well below the 50-day during the swoon, making Paypal’s action appears resilient by comparison. Since then, the stock has been drifting in a narrow range. Part of the lack of excitement is obviously attributable to the holiday season removing volatility and volume from the marketplace. The rest of it is likely residual effects from November’s plunge, which scared buyers away for a spell.

Perhaps PYPL was merely waiting for the 50-day moving average to catch-up. Whatever the reason, Wednesday’s sharp rally finally felled the descending trendline that has defined the stock’s behavior in recent weeks, pole-vaulting it deep into bullish territory in the process.

Source: OptionsAnalytix

At this point, a re-test of all-time highs at $79.39 seems inevitable. If buyers somehow fumble, it’s worth identifying which price level, if broken, would change our outlook. Consider $72.50 that line in the sand.

Provided we remain above it, the path of least resistance for PYPL shares is higher.

PYPL Trade

To capitalize on further upside, buy the Feb $75/$80 bull call spread for around $2.45. This strategy offers a limited risk and limited reward approach that could double your money if the stock simply rises to $80 by expiration.

The initial cost of $2.45 is the max loss and it will be forfeited if Paypal sits below $75 at expiration. The max gain is $2.55 and it will be delivered directly to your doorstep if PYPL stock sits above $80 at expiration.

There is an earnings release looming on Jan. 25, so consider re-assessing your position the day before and decide if you’re willing to hold into the event.

As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.

For a free trial to the best trading community on the planet and Tyler’s current home, click here!


Article printed from InvestorPlace Media, https://investorplace.com/2018/01/paypal-holdings-inc-pypl-stock-strong-comeback/.

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