Paypal (NASDAQ:PYPL) boasts one of the best charts in the market right now. A recent bout of consolidation is setting up a classic breakout pattern. Read-on for a detailed analysis and a tantalizing PYPL stock trade idea.
Trade war drama and the robust ascension from the U.S. dollar are creating an environment of winners and losers. Indeed, it has become a tale of two tapes. On the weak side lies large-caps and foreign equities. On the strong side lies small-caps and tech stocks. While the former can’t get out of their own way, the latter group has been galloping higher like a freshly released thoroughbred. And it’s the second group that PYPL stock calls home.
After meandering for the first five months of the year, PYPL finally caught fire last month, and it hasn’t stopped heating up since. The rising 200-day moving average sparked the ascent, which has now carried the stock to the brink of a breakout to record heights. In fact, a new intraday high was notched yesterday.
From a pattern perspective, Paypal’s price action could be considered a six-month cup-and-handle pattern. The spate of higher pivot lows of late is signaling increased buying aggression, which will propel PYPL stock to even further heights.
Volume is also adding strength to the bull case. We’ve seen many accumulation days crop up over the past two months that signals buyers are driving the bus.
The PYPL Trade
With an implied volatility rank of 28%, PYPL options are a buy. I like the idea of building a two-month bull call spread to more than double our money if the stock cooperates. Buy the Aug $87.50/$92.50 bull call spread for around $1.90.
The risk is limited to your initial investment and it will be lost if PYPL sits below $87.50 at expiration. The potential reward is $3.10 and could be captured if the stock can lift above $92.50 by expiration.
As of this writing, Tyler Craig held bullish positions in PYPL. Want more education on how to trade? Check out his trading blog, Tales of a Technician.